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Contents

1 London Maritime Arbitration


2 The Arbitration Act 1996
3 Mediation and Arbitration
4 The Arbitration Agreement
5 The Conflict of Laws
6 Disputes about the Tribunals Jurisdiction
7 Stays of English Court Proceedings Brought in Breach of an Agreement to Arbitrate
8 Injunctions and Arbitration
9 Extending Agreed Time Limits for Beginning Arbitral Proceedings
10 Appointment of Arbitrators and Umpires
11 The Arbitrator
12 Procedure and Evidence
13 Confidentiality in Arbitration
14 Remedies for Delay
15 Arbitration and Third Parties
16 Preliminary Issues
17 Security for Costs
18 Security for Claims in Arbitration
19 Arbitration Awards
20 Arbitrators Fees and Expenses
21 Costs

22 Challenging an Award in the English Courts


23 Enforcement of Awards
APPENDIX A: Arbitration Act 1996
APPENDIX B: THE LMAA Terms (2006)
APPENDIX C: The LMAA Small Claims Procedure
APPENDIX D: The LMAA Intermediate Claims Procedure 2009
APPENDIX E: The LMAA/Baltic Exchange Mediation Terms (2009)
APPENDIX F: The UNCITRAL Model Law
APPENDIX G: CPR Part 62 on Arbitration Claims
APPENDIX H: Practice DirectionArbitration

APPENDIX I: The Admiralty & Commercial Courts Guide

APPENDIX J: Departmental Advisory Committee on Arbitration Law Report on the


Arbitration Bill

APPENDIX K: Departmental Advisory Committee on Arbitration Law Supplementary


Report on The Arbitration Act 1996*

APPENDIX L(i): LMAA Standard Procedure

APPENDIX L(ii): LMAA ICP Procedure

APPENDIX L(iii): LMAA Small Claims Procedure

APPENDIX L(iv): Arbitration Claims

Chapter 1

London Maritime Arbitration


London Maritime Arbitration

1. Introduction
2. The London Maritime Arbitrators Association
3. LMAA Terms
4. The Small Claims Procedure
5. FALCA Rules
6. Intermediate Claims Procedure
7. Maritime arbitration and the Civil Procedure Rules
8. Arbitration and the Human Rights Act 1998
9. Arbitration and European Competition Law

1. INTRODUCTION
Arbitration is a private method of resolving disputes. It is used when parties agree to refer their
dispute to an impartial tribunal consisting of one or more arbitrators. Parties normally agree to
arbitration by means of an arbitration clause in a contract made before a dispute has arisen. It can
also be agreed after a dispute has arisen. Arbitration differs radically from court proceedings in
that it arises out of an agreement and the rules of procedure governing litigation do not apply, thus
allowing a flexible and confidential procedure to be adopted to suit the parties convenience.
Arbitrators are generally appointed and paid by the parties; they are usually chosen for their
familiarity with the commercial, technical or legal aspects of the dispute. The advantages of
arbitration are its privacy and its potential as a flexible, speedy means of resolving commercial
disputes. However, the efficiency of arbitration depends on the cooperation of the parties (and
their lawyers and indeed the arbitrators) in preparing a case and minimising the areas of
substantive dispute. The Arbitration Act 1996 places duties on the parties and the arbitrators to
ensure the dispute is resolved efficiently. However, in practice it may be difficult to enforce these
duties and arbitration can be just as slow and expensive as litigation if the parties will not
cooperate and if the arbitrators do not take a firm approach to the proceedings.
London maritime arbitration is a broad term usually applied to arbitration taking place in
London where the dispute involves in some way a shipfor instance a dispute under a
charterparty, a bill of lading or a ship sale agreement. There is, however, no strict definition of
maritime arbitration which would require the involvement of a ship and any arbitration carried out
on the terms of the London Maritime Arbitrators Association (the LMAA Terms) might be
termed a maritime arbitration. This book aims to provide a practical guide to the law and practice
of maritime arbitrations in London, particularly arbitrations proceeding under the LMAA Terms.

2. THE LONDON MARITIME ARBITRATORS ASSOCIATION (THE LMAA)

History and aims


Traditionally, maritime arbitrators were members of the shipping trade who found time to act as
arbitrators largely on an honorary basis. Maritime arbitration is now much more time-consuming
and formal. Most arbitrations are carried out by full-time professional arbitrators, technical

experts, or lawyers who charge a professional fee. It appears that more than half of London
maritime arbitrations are being decided by about half a dozen individuals.1 The LMAA is a
professional association which was set up in 1960, originating from a group of brokers at the
Baltic Exchange who were listed as available to be appointed as arbitrators. Unlike the
International Chamber of Commerce (ICC) or the Grain and Feeds Trade Association (GAFTA),
the LMAA does not actively supervise or administer arbitrations. However, the LMAA may assist
in a limited way as agreed by the parties. For example, under LMAA Terms, the President of the
LMAA may make appointments where an arbitrator has resigned. The business of the LMAA is
managed by the LMAA Committee, which is chaired by the LMAA President and elected by full
members.
The LMAA plays a central and supportive role in London maritime arbitration. Its members
conduct the vast majority of maritime arbitrations in London; most years they receive around
3,000 appointments and issue more than 400 awards.2 The LMAA is responsible for drawing up
the LMAA Terms (and other rules such as the Small Claims Procedure) and laying down
standards of conduct for its members. It has an informative role: maintaining a website, issuing a
handbook, publishing a newsletter and generally keeping members informed of relevant
developments, for instance by holding seminars. The LMAA website and handbook are very
useful sources of information on practice and individual arbitrators.3 In addition, the LMAA may
be called upon to appoint arbitrators in accordance with the LMAA Terms or an arbitration clause
and to give members advice on specific questions. In a wider context it seeks to maintain high
professional standards in maritime arbitration and to act as a representative body, for instance by
making representations about proposed legislation relevant to its members interests.

Members
The LMAA consists of two main groups of members. There are currently 35 full members who
are generally prepared to undertake maritime arbitration of any description or duration.
Approximately half of these have a predominantly legal background and the rest have technical or
commercial expertise. Many full members arbitrate as a full-time occupation. They would almost
certainly be treated as commercial men or engaged in the shipping trade for the purpose of
satisfying such a qualification required in an arbitration clause.4 To become a full member the
applicant must demonstrate his knowledge of the relevant areas of English law and competence in
writing awards. The general rule is that an applicant for full membership must have been engaged
for at least 15 years in a position of responsibility within the shipping industry, generally in
commercial, technical or legal areas. Applicants must be UK residents or otherwise able to attend
London hearings at short notice. A substantial commitment to arbitration will normally be
required to ensure that sufficient time can be given to arbitrations and to help secure the
impartiality of an independent arbitrator. The LMAA election sub-committee will interview
potential full members in meetings. The sub-committee will report on each applicant but election
to full membership is ultimately decided by the LMAA Committee. The LMAA Committee has
powers (which have never had to be used) to remove a member from the LMAA where his
conduct is inconsistent with LMAA membership.
The second group of LMAA members consists of around 800 supporting members drawn mainly
from the shipping trade, solicitors firms, barristers and P&I clubs. Supporting members do not, as

a general rule, practise as arbitrators or umpires but they lend their support to the objects of the
LMAA. Applicants for supporting membership should be aged at least 28 with suitable
commercial or technical experience or be qualified as a lawyer for five years. The application
must be supported by one full member or two referees, preferably supporting members. The
names of any supporting members who would accept appointments as an arbitrator and are willing
to be named as a would be arbitrator are listed in the LMAA Newsletter.
The supporting members represent the users of London maritime arbitration. The Supporting
Members Liaison Committee plays an important role in raising matters of interest and liaising
with the LMAA, for example in the drafting of LMAA Terms. Most significant changes in
practice will only be adopted after consultation with this committee. Supporting members also
have the opportunity to meet full members throughout the year at seminars, lunches, meetings and
the annual dinner.

3. THE LMAA TERMS


LMAA Terms were first introduced in 1984 and amended versions came into force in 1987, 1991,
1997, 2002 and most recently in 2006 (Appendix L contains flow charts setting out the usual
procedure under the 2006 Terms). The Terms are flexible in that the parties and the arbitrators
may agree to alter or dispense with any part of them. The combination of clarity, convenience and
flexibility found in the LMAA Terms means that they are often chosen to govern arbitrations
where the arbitrators are not members of the LMAA, for instance where the sole arbitrator is a
practising lawyer. The current version (the LMAA Terms (2006)) applies to all arbitrations
commenced on or after 1 January 2006.5 The current Terms (like the previous LMAA Terms)
largely reflect the provisions of the 1996 Act. Paragraph 7(a) provides a general rule that:
The arbitral proceedings and the rights and obligations of the parties in connection therewith shall
be in all respects governed by the [1996] Act save to the extent that the provisions of the Act are
varied, modified or supplemented by these Terms.
The Terms provide further detail and, in some respects, confer greater powers on the tribunal, for
example by enabling the tribunal to make orders for concurrent hearings. The changes introduced
in 2006 are intended to address needs that have become apparent since 2002. Most significantly,
paragraph 22 of the LMAA Terms 2006 now provides for a reasoned award to be made unless the
parties agree otherwise, This change reflects the actual practice in LMAA arbitrations, as well as
being in line with the trend in other arbitral bodies. The more specific effects of the LMAA Terms
are discussed throughout the rest of this book. References to the LMAA Terms in this book are
to the current LMAA Terms (2006).

When are LMAA Terms applicable?


If an arbitration clause specifies that LMAA Terms apply to the arbitration then this agreement
will bind the parties and the tribunal. Maritime arbitrators usually accept appointments on or
subject to the LMAA Terms in force for the time being, either by expressly stating this or by a
printed notice to that effect on their writing paper and fax heading. An arbitrators acceptance of
appointment on LMAA Terms will mean that those Terms govern his appointment and his
relationship with the party appointing him, for example as regards his right to booking fees.

However, this alone will not be sufficient to render the Terms applicable to the conduct of the
arbitration because this requires the agreement of both parties, typically by agreement in the
arbitration clause, or where the arbitrator is appointed as sole arbitrator or the other partys
arbitrator has also accepted an appointment on LMAA Terms. This is reflected by paragraph 5(b)
of the LMAA Terms which provides that the parties shall be taken to have so agreed whenever a
sole arbitrator or both the original arbitrators have been appointed on the basis that the Terms
apply to their appointment. Paragraph 5 further supports this by going on to provide that:
Whenever a sole arbitrator or both the original arbitrators have been appointed on the basis
referred to at (b), such appointments or the conduct of the parties in taking part in the arbitration
thereafter shall constitute between the parties an agreement that the arbitration agreement
governing their dispute has been made or varied so as to incorporate these Terms and shall further
constitute authority to their respective arbitrators so to confirm in writing on their behalf.
Paragraph 5(a) of the LMAA Terms provides that the parties shall be taken to have agreed to the
application of the LMAA Terms where the dispute is referred to a sole arbitrator who is a full
member of the LMAA, or the original arbitrators appointed by the parties are full members (unless
both parties have agreed otherwise). The effectiveness of this provision in making the arbitral
proceedings subject to LMAA Terms is doubtfulif the parties have not agreed to the application
of the Terms, the Terms cannot effectively bind them to be taken to have so agreed.6 The mere
fact of appointing full members of the LMAA would probably not, in itself, always amount to an
agreement (whether implied or as a matter of custom) to the application of the LMAA Terms.
Some full members of the LMAA also accept appointments pursuant to other arbitration rules, for
example GAFTA or LCIA rules so it is not a universal practice that full members of the LMAA
accept all appointments on LMAA Terms.
The decision of Saville J in Fal Bunkering v Grecale Inc of Panama 7 concerned this type of
scenario. A dispute arose out of a charterparty which provided for arbitration but without
reference to arbitration rules. The owners appointed a full member of the LMAA who expressly
accepted the appointment on LMAA Terms. The charterers were not informed of the terms of that
appointment and their arbitrator (also a full member of the LMAA) accepted appointment without
reference to any terms. The owners applied to the arbitrators for security for costs, relying on the
LMAA Terms which gave the arbitrators jurisdiction to grant security for costs. The charterers
sought, and were granted, a declaration that the owners were not entitled to apply to the arbitrators
for security.
Saville J held that the starting point in deciding the terms governing a reference is the parties
express or implied agreement. What the parties impliedly agreed was to be found by looking at
what each party was reasonably entitled to conclude from the attitude of the other. It was not
possible to assume from the fact that both arbitrators were known to be members of the LMAA
that, as a matter of usage, the arbitration should be conducted on LMAA Terms. It was not shown
that LMAA members universally and invariably only accepted appointments on LMAA Terms.
On the facts, there was no agreement on the terms governing the reference. Saville J applied a
contractual analysis of the arbitrators relationship with the parties and suggested, obiter, that if
the charterers arbitrator had accepted appointment on LMAA terms this would probably have
been sufficient to incorporate the LMAA Terms in the reference.8

It is questionable as to whether Fal Bunkering remains good authority that the appointment of full
LMAA members as arbitrators (or the appointment of one arbitrator, but not the others, expressly
on LMAA Terms) in an ordinary shipping dispute does not in itself mean that the reference is
subject to the LMAA Terms. Now it might well be held that it is universal practice for LMAA full
members to accept appointments in charterparty or bill of lading disputes only on LMAA Terms.
The problem is unlikely to arise in practice since full members of the LMAA usually accept
appointments expressly subject to the LMAA Terms. Their correspondence will usually contain
notices to the effect that they accept appointment on LMAA Terms so that parties continuing in
the arbitration without objection to the Terms would probably be treated as agreeing by conduct to
incorporate them.9 If an arbitrator accepts appointment on LMAA Terms and becomes the sole
arbitrator by default (whether by a court appointment or a contractual mechanism or by statute,
see Chapter 10 on default appointments) it is unlikely that the LMAA Terms would apply to the
arbitration because there is no agreement as such. However, if the party in default took part in the
arbitration he would probably be treated as having agreed by conduct to the application of the
Terms (though this may only be the case if the defaulting party knew or should reasonably have
known that the arbitrator had accepted appointment on those Terms).

Which LMAA Terms apply?


The LMAA Small Claims Procedure (or FALCA Rules or the Intermediate Claims Procedure)
will normally apply where there is provision to that effect in the arbitration clause or an agreement
by the parties after the dispute has arisen. In general, however, maritime arbitrators accept
appointments on the current LMAA Terms or those in force for the time being. The LMAA
arbitration clause makes clear that the arbitration shall be conducted in accordance with the
LMAA Terms current at the time when the arbitration proceedings are commenced. The current
LMAA Terms are stated to apply to all arbitrations commenced on or after 1 January
2006.10 Uncertainty as to the applicable terms may arise where the arbitration agreement was
made before the current rules came into force and it provides for arbitration according to the rules
in force at the date of the contract. The question of which version of the LMAA Terms will apply
is a matter of construction of the arbitration agreement and the arbitrators terms of appointment.
Where an arbitration agreement provides that certain rules apply, then prima facie that refers to
the rules in force at the time the arbitration is begun.11
In The Robin,12 a charter made in January 1997 included an arbitration clause providing that
where appropriate the LMAA Small Claims Procedure (1989) will be used. The 1989 procedure
had been superseded by a later procedure and Toulson J found that the 1989 procedure did not
apply: the probable intention of the parties was that the procedure current at the relevant date (i.e.
commencement of arbitration) would apply and the reference to 1989 was an error.
It is doubtful whether amendments to arbitration rules made after the commencement of an
arbitration would apply in preference to the rules in force at the date of commencement. Amended
arbitration rules would probably only be given preference in so far as the old rules had become out
of date and impractical to apply.13

4. THE SMALL CLAIMS PROCEDURE

The LMAA Small Claims Procedure is designed to provide a quicker and cheaper way of dealing
with small claims: it is currently suggested for use where neither the claim nor the counterclaim
exceeds $50,000 (excluding interest and costs). The procedure will apply if agreed by the parties:
typically a charter party arbitration clause may provide that it applies automatically to disputes
below a certain sum. The LMAA Commentary on the Small Claims Procedure (2006) stresses that
this procedure is not suitable in the case of complex issues, or where examination of witnesses
may prove necessary. Further, the LMAA comments that the widespread use of the small claims
procedure, regardless of its suitability for the case at hand, is a regrettable tendency which may
lead parties to be dissatisfied with the ultimate results. Nevertheless, the LMAA still recognises
that the procedure may be suitable for dealing with larger claims involving a single issue where no
hearing is required. The Procedure is popular14 with parties but it is generally not a lucrative area
of practice for arbitrators due to the fixed fees; members of the LMAA agree to deal with disputes
under this procedure as a service to the industry.15 The procedure is set out in Appendix C (with
a flow chart at Appendix L) but the main features are:

use of a sole arbitrator;


fixed arbitrators fees of a sum to be determined from time to time by the LMAA
Committee16 and to be paid as a condition precedent to the valid commencement of the Small
Claims Procedure;
in respect of challenges to jurisdiction, such work must be paid for on a quantum meruit basis
before the arbitrator resolves the challenge. These fees are borne, in the first instance only, by
the claimant. This 2006 change reflects the large quantity of work that an arbitrator may have
to undertake in resolving a jurisdictional challenge;
a strict timetable for exchange of submissions aimed to be completed within three months;
no oral hearing unless in exceptional circumstances; only relevant documents to be
disclosed on exchange of submissions;17
recoverable costs are limited to such sum as is determined from time to time by the LMAA
Committee;18
unless otherwise agreed or requested by the arbitrator, parties are not required to present
schedules of the costs claimed: the amount is to be left to the arbitrators discretion;
no right of appeal, subject to challenges to jurisdiction allowable under the Arbitration Act
1996;19
pursuant to paragraph 9, in any case where it is determined or agreed, because of the nature
and/or weight of a case, that the Small Claims Procedure is inappropriate and shall not be
applicable, it shall cease to apply in its entirety. This represents a departure from the earlier
versions of the Small Claims Procedure, and is designed to combat the regrettable tendency
to over-use this procedure.

Further aspects of the procedure are dealt with more fully in Chapter 12.

5. THE FALCA RULES


FALCA stands for Fast and Low Cost Arbitration. These rules were adopted in 1996 to provide
a speedy and more inexpensive method of resolving middle range disputes; typically involving
claims up to $250,000 (the sum deemed to be agreed in the FALCA arbitration clause). The
FALCA Rules have proved relatively unpopular20 as compared to the Small Claims Procedure and

it is likely that their use will decline further as the new Intermediate Claims Procedure, discussed
below, takes over more medium-sized disputes. Nevertheless, as the FALCA Rules do still exist,
they will be briefly discussed.
FALCA Rules will apply where the parties have agreed on them, ordinarily in the arbitration
clause or after the dispute has arisen. They share many of the features of the Small Claims
Procedure:

sole arbitrator;
timetable designed to produce an award within eight months of appointment;
no oral hearing unless the arbitrator requires it; and
no right of appeal.

Under FALCA Rules, however, neither the arbitrators fees nor the recoverable costs are limited,
although the parties may generally not seek security for costs in excess of 7,500.

6. INTERMEDIATE CLAIMS PROCEDURE


In March 2009 the LMAA introduced the Intermediate Claims Procedure (ICP) to deal with
medium-sized claims deserving a fuller procedure than the Small Claims Procedure but not, on
grounds of proportionality, the full procedure offered by the LMAA Terms. FALCA had proved
relatively unpopular and the LMAA established a working group in 2006 to investigate alternative
methods for dealing with medium-sized claims. The ICP was then developed in collaboration with
the Baltic Exchange. The intention behind the procedure is that it should normally provide its own
momentum and that costs should be largely predictable at the outset.
The full terms of the ICP (together with the LMAA commentary) are set out in Appendix D and
should be referred to for details. The ICP will only apply where the parties have so agreed, either
in their contract or after the dispute has arisen. Parties may have to consider redrafting arbitration
clauses to make reference to the Intermediate Claims Procedure. The LMAA has provided
suggestions as to suitable arbitration clauses which provide for the Intermediate Claims Procedure
to apply.21 The parties may agree on a monetary limit for the application of the ICP but in the
absence of such express agreement the ICP will apply where the total amount of claims or
counterclaims (excluding interest and costs) is between the size of US$100,000 (or the agreed
upper limit for the LMAA Small Claims Procedure) and US$400,000. If either party at any time
advances claims or counterclaims which in total exceed US$400,000 then the tribunal has
discretion as to whether to continue the reference under the ICP or the LMAA Terms.
The full procedure is set out in Appendix D with a flow chart at Appendix L, but the main features
of the procedure are as follows:

The parties may agree on the composition of the tribunal, but in the absence of agreement, the
tribunal shall consist of three arbitrators.
There is no automatic right to an oral hearing, and only exceptionally will one be held. If an
oral hearing is allowed, it will generally be limited to a maximum of five hours and is
intended to allow for cross-examination of witnesses with provision for closing written
submissions thereafter.

A strict timetable is set up for exchange of opening submissions, with no formal disclosure
stage. All relevant documents must be disclosed with opening submissions.
Parties must give notice of intention to serve factual witness statements and serve them within
28 days of completion of opening submissions.
Expert evidence can be adduced only with the express permission of the tribunal.
Supplementary factual and expert witness statements are only allowed with the express
permission of the tribunal.
There is limited provision for written closing submissions where there is an oral hearing or
further evidence has been exchanged following the completion of opening submissions.
In order to ensure that the timetable of the arbitration maintains momentum, a party may
apply for peremptory orders for failure to comply with time limits. Further, any submissions
or evidence submitted after the expiry of a time limit set by a peremptory order shall not be
admissible.
The tribunal will make every effort to publish the award within six weeks from the service of
the last submissions of the parties.
Any right of appeal to the courts is excluded, except the parties are deemed to have agreed
that there will be a right of appeal where the tribunal certifies in its award that the dispute
between the parties involves a question of law of general interest or importance to the trade or
industry in question. This novel provision is intended to avoid a dichotomy of views between
a tribunal and the courts as to whether the award contains a legal question of general
importance and to avoid the cost of applying for permission to appeal where it has been
demonstrated to the tribunal that the award involves a question of general importance.
The tribunal is to assess costs at its discretion on a summary and commercial basis,
according to what is fair, reasonable and proportional to the matters in dispute. The parties
recoverable costs are to be capped at a maximum figure of 30 per cent of the claim advanced
(plus, should there be a counterclaim that the tribunal considers to be distinct22 from the
claim, 30 per cent of the counterclaim). If there is an oral hearing the percentage cap on
recoverable costs will be increased to 50 per cent (not including the cost of hiring a venue and
catering). If non-monetary relief is sought, the tribunal will decide what overall cap to apply
following completion of opening submissions.
Security for costs will not be granted in a sum above the amount at which the parties
respective costs have been capped.
Save in exceptional circumstances, the tribunals costs (excluding the appointment fee and
costs in respect of a challenge to the tribunals jurisdiction) shall not exceed one-third of the
total sum at which the partys costs are capped, or two-thirds thereof in the case of a two- or
three-person tribunal.

As at publication these provisions are brand new: it remains to be seen how popular they will
prove to be with parties and practitioners.

7. MARITIME ARBITRATION AND THE CIVIL PROCEDURE RULES


The Civil Procedure Rules (the CPR), first introduced in 1999, are the court rules applicable to
civil litigation in the English High Court and county court. At its outset the CPR expressly states
its aim, or overriding objective, as follows:

(1) These Rules are a new procedural code with the overriding objective of enabling the
court to deal with cases justly.
(2) Dealing with a case justly includes, so far as is practicable
o (a) ensuring that the parties are on an equal footing;
o (b) saving expense;
o (c) dealing with the case in ways which are proportionate
(i) to the amount of money involved;
(ii) to the importance of the case;
(iii) to the complexity of the issues; and
(iv) to the financial position of each party;
o (d) ensuring that it is dealt with expeditiously and fairly; and
o (e) allotting to it an appropriate share of the courts resources, while taking into account
the need to allot resources to other cases.

The parties are under a duty to help the court to further the overriding objective.23 Particular
features of the CPR involve the use of active case management; this means the court is involved in
giving directions to ensure that the case proceeds efficiently, it will identify the issues at an early
stage and decide which need trial and which could be decided summarily. The court will also take
steps to trim the non-essential features of litigation, in particular by restricting, where possible, the
amount of oral evidence, expert evidence and disclosure of documents. Avoiding the
accumulation of excessive costs is a high priority and this is given effect in various ways, in
particular by the use of settlement offers, encouraging alternative dispute resolution and making
the parties more aware of costs being incurred (e.g. by making orders for summary assessment of
costs as soon as an application is heard). Delay is tackled in particular by using stricter timetables
for preparing a case which cannot simply be extended at the will of the parties. The CPR also aims
to be user-friendly; it avoids technical legal terms and Latin expressions.
The CPR covers applications to court relating to arbitration,24 but has not significantly changed
procedure as the court rules adopted to give effect to the 1996 Act already adopted the philosophy
of dealing with cases expeditiously. More specific features of the CPR as adopted in the
Commercial Court are now features of arbitration, for example the test for disclosure.
The CPR has, however, had a wider impact on arbitration because it has raised new priorities in
resolving civil disputes. The judge is expected to take a proactive approach in taking charge of a
case at an early stage and managing its conduct. The overriding objective clearly echoes the duty
on an arbitral tribunal under section 33 of the 1996 Act to act fairly as between the parties and to
adopt procedures suitable to the circumstances of the case, avoiding unnecessary expense and
delay. The parties duty to give effect to the overriding objective under the CPR also reflects the
parties duty in an arbitration under section 40 of the 1996 Act to do all things necessary for its
proper and expeditious conduct. Lord Woolf MR has suggested that the underlying spirit of the
1996 Act is very much in accord with that of the CPR in that it sets out in readily understandable
terms what is required of the parties.25 It is noteworthy, however, that although the 1996 Act
encouraged autonomy and independence of arbitration from court procedure, many arbitrators
have now adopted practices from the CPR, for example when making costs orders.26 The
procedural rules set out in the Second Schedule of the LMAA Terms (2006) adopt the CPRs test
for standard disclosure of documents and expressly provide that parties will generally not be

required to provide broader disclosure of documents than required by the courts. In addition, they
adopt a fairly strict timetable for exchange of submissions. However, the LMAA Terms give the
arbitrators very wide discretion over procedure and CPR practice would only be adopted if
appropriate to combat undue costs and delay.
Adoption of some aspects of case management in arbitration will be welcomed since they may be
useful, in particular if the parties are failing to cooperate with each other or one party is being
obstructive. Cresswell J has recommended that in major arbitrations, arbitrators should consider
asking the parties to produce a short agreed list of the important issues and the common ground
between the parties, thus following practice under the CPR and the LMAA Terms.27 Limiting
disclosure is also valuable since this has often proved to be a disproportionately expensive and
time-consuming part of the preparation for an arbitration. However, arbitrators should exercise
some caution in adopting the CPR. First, in an arbitration the parties may choose the procedure for
resolving their dispute; the tribunals broad powers to decide procedural matters only apply to the
extent that there is no such agreement. Second, the CPR is designed to cover a wider range of
cases where parties have not necessarily entered into a contract (e.g. tort claims). In such
circumstances it will be particularly important to ensure that the parties are on an equal footing
so that a wealthy litigant cannot exploit the rules to intimidate a weaker party. In arbitration,
however, the parties are generally commercial concerns who have chosen to arbitrate pursuant to a
commercial contract; accordingly there will often be less need to make allowances for inequality
between the parties. Third, judges have to consider how much of the courts finite and publicly
funded resources should be spent on a particular case with regard to the interests of other litigants
in the queue. In contrast, an arbitrators authority derives from the fact that he was appointed by
the parties for the express purpose of spending time to resolve their dispute. He should not accept
an appointment if he cannot find adequate time to deal with the case, and accordingly the issue of
appropriate allocation of time between appointments should not cause conflict. However, the
principle of proportionality will apply in arbitration in accordance with section 33 of the 1996 Act
(i.e. choosing a fair procedure and avoiding unnecessary delay or expense) so that an arbitrator
can decide on the most appropriate procedure for a particular case depending on its size,
significance and complexity. In addition, hearing dates will generally depend on the tribunals
other commitments.
A final note of caution in case management arises from the fact that the CPR requires the parties
to put substantial work into a case at the outset in identifying the issues and the merits of the case.
This front-loading effect means that high costs are incurred at an early stage. The CPR also
requires the parties to stick to the courts timetable and streamlining measures. Most parties will
favour the efficiency of this approach but the fast track is not always the best track;28 some may
choose arbitration for a more flexible and thorough approach; if that preference is agreed it should
be respected by the tribunal.

8. ARBITRATION AND THE HUMAN RIGHTS ACT 1998


The Human Rights Act 1998 came into force in English law on 1 October 2000 and comparatively
quickly it began to have an impact, however modest, in maritime arbitration.29 The purpose of the
Human Rights Act is to give effect, within English law, to the rights and freedoms protected by
the European Convention on Human Rights. This Convention is an international treaty drawn up

in the aftermath of the atrocities of the second world war and the European Court of Human
Rights in Strasbourg was set up to protect the rights recognised.
The Convention is directed towards giving the individual (including legal persons such as bodies
corporate) rights which are enforceable against public authorities. Accordingly, commercial
arbitration will very rarely involve substantive Convention rights such as freedom of speech since
arbitration is normally between private parties and concerns issues of private lawtypically
contractual claims. However, the right to a fair hearing is a fundamental human right and its scope
is fairly often disputed in a commercial disputeusually in procedural issues such as whether
certain evidence should be admitted. Article 6(1) of the Convention provides that everyone is
entitled to a fair and public hearing within a reasonable time by an independent and impartial
tribunal established by law. The Human Rights Act has not, however, had any significant effect
on confidentiality and procedural autonomy in arbitration because, in accordance with the
Strasbourg jurisprudence, the parties choice of arbitration amounts to a renunciation of the
guarantees of a public court procedure given by Article 6(1).30 Consideration was given to this
issue in a non-maritime context inDepartment of Economics Policy & Department of the City of
Moscow v Bankers Trust Co.31 For similar reasons the existing statutory restrictions on access to
court would probably be treated as compatible with the Human Rights Act, in particular since
mandatory procedural safeguards are maintained under the 1996 Act.32
There have been attempts to argue that arbitration clauses as a whole should be found contrary to
Article 6 of the Convention because they restrict access to a court hearing. Such attempts have
been unsuccessful because Convention jurisprudence accepts that, by agreeing to arbitrate, parties
waive their rights to a court hearing under Article 6(1).
In Stretford v Football Association,33 the Court of Appeal considered an argument that an
arbitration clause in respect of disciplinary proceedings under the FA Premier League Rules (and
the disciplinary proceedings carried out thereunder) were contrary to Article 6. The Court of
Appeal found, however, that the Arbitration Act 1996 complied with the requirements of Article
6. The only Article 6 requirements not formally met by the Act were those that the hearing be held
in public, that the tribunal members be independent, that the tribunal be established by law and the
judgment be pronounced publicly. However, by entering into the arbitration agreement
voluntarily, the parties thereto were to be considered as having waived their Article 6 rights,
provided that the waiver was agreed without constraint and was not contrary to any important
public interest. English law itself protected parties from such constraint, and further provided for
the courts to put right any partiality or lack of procedural fairness.
Similarly in El Nasharty v J Sainsbury plc,34 Tomlinson J rejected the argument that an arbitration
agreement was in breach of Article 6 by depriving the parties of access to the courts. Further, an
argument that one party could not now afford the costs of arbitration, and therefore was being
deprived of access to justice, was rejected. In Sumukan Ltd v Commonwealth
Secretariat 35 Colman J considered that an exclusion agreement precluding appeals under section
69 of the Arbitration Act, was not in breach of Article 6. The case continued to the Court of
Appeal, but on different points.36

The Human Rights Act has more commonly been invoked to challenge legislation and practice
relating to proceedings linked to arbitration. The courts have taken a robust but carefully
considered approach to such human rights points and have generally found that English law is
compatible with Convention rights. For example, the civil procedure rules provide that most
arbitration claims are heard in private and these rules were carefully considered and upheld
inDepartment of Economics Policy & Development of the City of Moscow v Bankers Trust
Co.37 The rule that applications for permission to appeal are ordinarily decided without an oral
hearing has also been upheld.38 However, some practices have changed in light of the Human
Rights Act, in particular judges now give reasons for their decision on an application for
permission to appeal under section 69 of the 1996 Act.
In North Range Shipping Ltd v Seatrans Shipping Corporation 39 Steel J had refused to give full
reasons for refusing permission to appeal from an award, instead referring simply to the statutory
grounds for refusing permission. The applicants argued that under the Human Rights Act 1998 the
court should give full reasons in accordance with Strasbourg jurisprudence on the right to a fair
hearing under Article 6(1). The Court of Appeal upheld Steel Js decision but held that the
practice of giving no reasons established in The Antaios 40 was incompatible with the Human
Rights Act. At the very least, the unsuccessful applicant for permission should be told which of
the statutory tests he had failed to meet. Whether or not the judge must go further and explain why
the test was not satisfied would depend on the circumstances, but very brief reasons would be
sufficient.41
Statutory restrictions on court intervention have also been challenged but have been found to be
compatible with the Human Rights Act because they reflect the parties choice, in the interests of
finality, privacy and efficiency, to waive their rights to have a public court hearing in favour of
having an arbitrator decide their dispute. In addition, the courts have been willing to uphold
statutory restrictions because the 1996 also maintains mandatory procedural safeguards.42 For
instance, the tribunal is under a mandatory duty to act fairly and impartially between the
parties43 and the Court of Appeal has a residual jurisdiction to intervene to prevent arbitrariness in
a judges decision making.
In Republic of Kazakhstan v Istil Group Ltd 44 the Court of Appeal had to consider whether the
restrictions on appeals in section 67(4) of the 1996 Act45 were compatible with the right to fair
trial set down in Article 6 of the Convention. It decided that section 67(4) was both legitimate and
proportionate, in that it was legitimate for Parliament to seek to restrict further appeals and that it
was proportionate to limit second appeals to those cases where the judge found there to be a
reasonable prospect of success. A further safeguard in the interests of fairness was provided in that
it was open to the Court of Appeal to review the fairness of the decision making process engaged
in under section 67(4). This exception, which is meant to provide an effective safety net, derives
from CGU International Insurance plc v AztraZeneca Insurance Co Ltd,46 where it was alleged
that the procedure in reaching the decision was so flawed that the decision could not be properly
called a decision at all. Intervention under this residual jurisdiction would, however, be
exceptional since it requires a substantial defect in fairness, going beyond even perversity, such
that the decision is invalidated. A residual jurisdiction to this effect was considered by the court to
have existed prior to the Human Rights Act in any event.

These decisions show that the law of arbitration is subject to the Human Rights Act but substantial
changes in law and practice have been relatively limited.
The applicability of the Human Rights Act within the arbitral process itself has not been fully
tested but the Act will probably be applicable in an arbitration governed by English law by reason
of an arbitrators implied duty to apply the law. If English law applies to the substance of the
dispute, arbitrators would be required to interpret legislation compatibly with Convention rights
and to recognise the unlawfulness of public authorities violating Convention rights.47 A tribunals
failure to apply these principles of law would render the award potentially challengeable for an
error of law. More controversial is whether an arbitral tribunal is under a duty to act compatibly
with Convention rights in making procedural decisions, for example in admitting evidence which
was obtained in breach of the parties right to privacy.48
The full impact of the Human Rights Act on arbitration will depend on the development of human
rights principles by the courts. Human rights issues are becoming increasingly important in
commercial disputes in the same way that European Community points have become increasingly
relevant in what might once have been regarded as purely domestic cases. The case law on Article
6(1) (both from Strasbourg and the English courts) is increasingly invoked in arbitration cases.49

9. ARBITRATION AND EUROPEAN COMPETITION LAW


If a competition law issue arises in a London maritime arbitration it will usually be governed by
English law and accordingly will depend on principles of European competition law which now
govern English law in this area. This book does not propose any in-depth treatment of European
competition law (or any other anti-trust rules) but rather attempts a brief introduction to the
growing relationship between this field and maritime arbitration.
Substantive European competition law is contained in Articles 81 and 83 of the EC Treaty. The
basic principle under EU law is that competition law prohibits anti-competitive agreements and
the abuse of a dominant position. Until fairly recently the main means of enforcing competition
law was by means of investigation by national competition authorities such as the Office of Fair
Trading or the European Commission. Pursuant to Regulation 01/2003, increased power to apply
competition law was devolved from the European Commission to national competition authorities
and courts of the EU Member States. However, Articles 81 and 83 have direct effect in English
law and are therefore enforceable in an arbitration governed by English law. The most common
issue to arise in an arbitration is the enforceability and effect of an agreement that breaches
competition law.
At the outset an issue may arise as to the very arbitrability of such issues. Historically, some
jurisdictions held that competition claims were not properly arbitrable since they raised issues of
public policy that could not properly be determined in a private arbitration.50 However, it is now
firmly established that competition issues are arbitrable under English law.51 Competition issues
do, however, raise particular problems in the context of arbitration. First, an arbitral tribunal will
not be able to provide the range of remedies available to official competition regulators (e.g. fines
or exemptions). In addition, competition issues may often require extensive disclosure and
complex expert economic evidence which may be costly and unfamiliar to most maritime
arbitrators. Issues of competition law will also commonly involve third parties that may not easily

be bound by the arbitral process.52 However, notwithstanding these problems, an arbitral tribunal
should generally address a competition issue where it arises since otherwise its award may be
unenforceable. The European Court of Justices key ruling in Eco Swiss China Time
Ltd v Benetton International BV 53 has had a significant, and controversial, impact on arbitration
law in this respect.
The Eco Swiss case concerned a dispute over a licence to make watches with the Benetton name.
Benetton unilaterally terminated the agreement, and subsequently an arbitration was commenced
to determine whether Benetton was in breach of its obligations under the licence agreement.
During the arbitration neither the parties nor the tribunal raised the issue of whether the agreement
was in accordance with European competition law. The arbitrators made two awardsa partial
and final awardboth of which found against Benetton. Benetton subsequently applied to the
Dutch courts for annulment of both awards on the grounds that they should be considered contrary
to Dutch public policy, as the original licence agreement was contrary to European competition
law. The matter went to the Dutch Supreme Court, who sought guidance from the European Court
of Justice as to whether a national court should grant annulment of an arbitration award if the
national court determined that the award was contrary to European competition law.
The European Court of Justice concluded that Article 81 was a matter of public policy. Therefore,
where a domestic court should, according to its own rules, annul an arbitration award on the
grounds of failure to comply with national public policy, it should similarly annul an award if it
failed to comply with Article 81. Further, the European Court held that competition law rules
should be considered as public policy for the purposes of Articles V(1)(c) and (e) and II(b) of the
New York Convention, and therefore national courts should refuse recognition and enforcement of
awards which did not comply with competition law. However, the court did not decide whether
arbitrators should be obliged to raise competition law issues of their own volition if they were
relevant to the dispute before it.
This last issue has caused some controversy, and no clear position seems to have been reached in
England on this subject. Given the paucity of published arbitration awards, uncovering the
reasoning and positions adopted by arbitral tribunals faced with this problem is difficult. Insofar as
a tribunal fails to consider competition law points (even if not raised by the parties), it may render
an award that is ultimately unenforceable, and therefore may be remiss in its duty to render an
enforceable award.54 However, maritime arbitrators may be reluctant to deal with competition law
issues which frequently involve a quasi-public economic analysis outside their normal experience.
This factor should be taken into account when appointing arbitrators, if a familiarity with
competition law would be advantageous in the context of the arbitration.55 Arbitration tribunals do
not have the ability to seek guidance from the European Court of Justice in the way that is open to
national courts.56 Similarly, if a tribunal sought guidance from the European Commission it could
place itself in breach of its obligation of confidentiality to the parties. However, pursuant to
section 37 of the Arbitration Act 1996, the tribunal could appoint an expert to provide it with
appropriate advice.
Parties approaching an arbitration involving competition elements must also consider whether the
remedies which an arbitral tribunal can provide are apt to deal with competition law problems. For
instance, insofar as a party is alleging that there is some form of anti-competitive collusion

between one party to the arbitration and a third party, the arbitral tribunal has extremely limited
scope in providing remedies that could bind the third party.57
It is difficult to ascertain the frequency with which competition issues are arising in London
maritime arbitrations, given the confidentiality of awards. However, the ambit of competition law
is expanding in the maritime field and there is an increasing scope for issues to arise. This is
particularly the case in respect of joint venture agreements in the field of maritime law, and
disputes involving slot chartering.58 Parties may find that this is an area which increasingly needs
to be addressed in the context of maritime arbitration, and both practitioners and the arbitrators
they appoint need to be live to the issues and pitfalls that this may create.
1 Bruce Harris, [1995] ADRLJ 18 at 19.
2 See the statistics regularly published in the LMAA Newsletter.
3 www.lmaa.org.uk. The LMAA can be contacted via the Honorary Secretary. Personal details of
said Honorary Secretary may change and therefore reference should be made to the website.
4 The Myron (Owners) v Tradax Export SA, The Myron [1969] 1 Lloyds Rep 411, at
415, Rahcassi Shipping Company SA v Blue Star Line Ltd, The Bede [1967] 2 Lloyds Rep 261.
5 For the meaning of commencing arbitration, see section 14 of the 1996 Act and Chapter 10 on
appointments.
6 Fal Bunkering of Sharjah v Grecale Inc of Panama [1990] 1 Lloyds Rep 369, 373.
7 [1990] 1 Lloyds Rep 369. At the time of the decision arbitrators only had the power to grant
security for costs if this was agreed by the parties.
8 Saville J at 373 made an analogy with Clarke v Dunraven [1897] AC 59 where competitors in a
regatta had each agreed with the secretary of the yacht club to obey certain rules during the race. It
was held that there was a contract on those rules between the competitors.
9 The last sentence of paragraph 5 of the LMAA Terms would support this view.
10 The issue of when an arbitration is treated as commenced is considered in Chapter 10. See
section 14 of the 1996 Act.
11 China Agribusiness Development Corporation v Balli Trading [1998] 2 Lloyds Rep
76; Perez v John Mercer & Sons (1922) 10 Ll L Rep 584; Bunge SA v Kruse [1979] 1 Lloyds
Rep 279 and EDM JM Mertens & Co PVBA v Veevoeder Import Export Vimex BV [1979] 2
Lloyds Rep 372 at 383.
12 Ranko Group v Antarctic Maritime SA [1998] LMLN 492, see transcript of 12 June 1998.
13 Bunge SA v Kruse [1979] 1 Lloyds Rep 279 at 286.
14 See statistics in the LMAA Newsletter.
15 LMAA Handbook, commentary on the Small Claims Procedure.

16 The fee level will be published on the LMAA website and in the LMAA Newsletter. As of July
2008, the fee stands at 2,000, with an additional fee of 1,250 where there is a counterclaim
which exceeds the amount of the claim.
17 The disclosure aspect of the Small Claims Procedure will probably be viewed similarly to
paragraph 9 of the Second Schedule to the LMAA Terms (2006) which provides that a party will
only be required to disclose the documents on which it relies or which adversely affect its own
case as well as the documents which either support or affect the other partys case. It is likely that
a similar test will be applied in practice in the Small Claims Procedure.
18 As of July 2008, the limitation on costs stands at 2,750 or 3,250 where the counterclaim
exceeds the amount of the claim (3,000 for arbitrations commenced before 1 July 2008).
19 This is an appeal under section 69 of the 1996 Act, challenge under sections 67 and 68 cannot
be excluded by agreement.
20 See LMAA Statistics (e.g. LMAA Newsletter Spring 2000, Autumn 2001).
21 See www.lmaa.org.uk for details.
22 In deciding whether the counterclaim is distinct from the claim the tribunal is likely to use the
same principles that are in applicable in deciding whether to award security for the costs of a
counterclaim, see Chapter 17.
23 Paragraph 1.3 of Part 1 of the CPR.
24 CPR Part 62 supplemented by the Arbitration Practice Direction.
25 Patel v Patel [2000] QB 551.
26 For example, Harris, Planterose and Tecks, The Arbitration Act 1996. A Commentary (4th edn),
p. 289, see also the award set out in Eastrade Commodities Inc v Gannet Shipping Ltd [2002] 1
Lloyds Rep 713.
27 Petroships Pte Ltd v Petec Trading & Investment Corporation of Vietnam, The Petro
Ranger [2001] 2 Lloyds Rep 348 at 358.
28 Mustill & Boyd, 2001 Companion, p. 32.
29 Mousaka Inc v Golden Seagull Maritime Inc [2001] 2 Lloyds Rep 657, upheld on appeal
in North Range Shipping v Seatrans Shipping Corporation [2002] EWCA Civ 405; [2002] 2
Lloyds Rep 1.
30 Deweer v Belgium, A/35, 27 February 1980, (1980) 2 EHRR 439, E Ct HR, paragraph
49, Stretford v Football Association [2007] EWCA Civ 238; [2007] 2 Lloyds Rep
31, Department of Economics Policy & Development of the City of Moscow v Bankers Trust
Co [2004] EWCA Civ 314; [2004] 2 Lloyds Rep 179, para 27. For further discussion see Mustill
& Boyd, 2001 Companion, pp. 76-79, C. Ambrose, Arbitration and the Human Rights Act 1998
[2000] LMCLQ 468 at 481-483.
31 [2003] EWHC 1377 (Comm); [2003] 1 WLR 2885 and on appeal at [2004] EWCA Civ 314;
[2004] 2 Lloyds Rep 179.

32 Notably in sections 24, 33 and 68. In Mousaka Inc v Golden Seagull Maritme Inc [2001] 2
Lloyds Rep 657, it was common ground that the statutory restrictions on the right to appeal from
an award under section 69 of the 1996 Act were consistent with Article 6(1). The requirement of
independence in addition to impartiality was rejected in the 1996 Act as unnecessary and
undesirable in arbitration, see paragraph 101 of the DAC Report.
33 [2007] EWCA Civ 238; [2007] 2 Lloyds Rep 31.
34 [2007] EWHC 2618 (Comm); [2008] 1 Lloyds Rep 360.
35 [2006] 2 Lloyds Rep 54; [2006] EWHC 304.
36 [2007] EWCA Civ 1148; [2008] 1 Lloyds Rep 40. An arbitration clause providing for
arbitrators to be drawn from a religious class was upheld in Jivraj v Hashwani [2009] EWHC
1364 (Comm).
37 [2004] EWCA Civ 314; [2004] 2 Lloyds Rep 179, for further discussion of the case see
Chapter 13 on confidentiality.
38 Section 69(5) of the 1996 Act. The absence of an oral hearing for determining an application
for permission to appeal was regarded as compatible with Convention rights in BLCT (13096)
Ltd v J Sainsbury plc [2003] EWCA Civ 884; [2004] 1 CLC 24.
39 [2002] EWCA Civ 405; [2002] 2 Lloyds Rep 1, upholding the decision in Mousaka
Inc v Golden Seagull Maritime Inc [2001] 2 Lloyds Rep 657.
40 Antaios Compania Naviera SA v Salen Rederierna AB [1985] 1 AC 191.
41 The Court of Appeals decision that it had residual jurisdiction to intervene in North Range
Shipping was confirmed in CGU International Insurance plc v AstraZeneca Insurance Co
Ltd [2006] EWCA Civ 1340; [2007] 1 Lloyds Rep 142; [2006] 2 CLC 441.
42 See Stretford v Football Association [2007] EWCA Civ 238; [2007] 2 Lloyds Rep at 31
and Republic of Kazakhstan v Istil Group Ltd [2007] EWCA Civ 471; [2007] 2 Lloyds Rep 548.
In Mousaka Inc v Golden Seagull Maritime Inc [2001] 2 Lloyds Rep 657 it was common ground
that the statutory restrictions on the right to appeal from an award under section 69 of the 1996
Act were consistent with Article 6(1).
43 The requirement of independence in addition to impartiality in Article 6 was not
incorporated into the 1996 Act because it was regarded as unnecessary in arbitration, see
paragraph 101 of the DAC Report.
44 [2007] EWCA Civ 471; [2007] 2 Lloyds Rep 548.
45 Section 67(4) provides that: The leave of the court is required for any appeal from a decision
of the court under this section.
46 [2006] EWCA Civ 1340; [2006] 2 CLC 441; [2007] 1 Lloyds Rep 142, see also ASM Shipping
Ltd of India v TTMI Ltd of England [2006] EWCA Civ 1341; [2007] 1 Lloyds Rep 136.
47 Human Rights Act 1998, sections 3 and 6, Arbitration Act 1996, section 46.

48 C. Ambrose, Arbitration and the Human Rights Act 1998 [2000] LMCLQ 468, see, also, Al
Hadha Trading Company v Tradigrain SA [2002] 2 Lloyds Rep 512.
49 Department of Economics Policy & Development of the City of Moscow v Bankers Trust
Co [2004] EWCA Civ 314; [2004] 2 Lloyds Rep 179.
50 E. Lecchi, M. Cover, Arbitrating Competition Law Cases [2008] Arbitration 65.
51 ET Plus SA v Welter [2005] EWHC 2115 (Comm); [2006] 1 Lloyds Rep 251, paragraph 51.
52 See Chapter 15 on third parties.
53 Case C-126/97 [1999] ECR I-3055; [1999] 2 All ER (Comm) 44.
54 P. Landolt, Modernised EC Competition Law in International Arbitration (Kluwer, 2006) No.
7-122.
55 H. van Houtte, Arbitration and Articles 81 and 82 EC TreatyA State of Affairs, ASA
Bulletin, 23/3 (2005); P. Lomas, Arbitration: Jurisdiction over EC Competition Law
Issues (Practical Law, 2004).
56 Nordsee Deutsche Hochseefischerei GmbH v Reederei Mond Hochseefischerei Nordstern AG
& Co KG Case C-102/91 [1982] ECR 1095.
57 See Chapter 15 on third parties.
58 C. Hancock QC, Containerisation, Slot Charters and the Law, Chapter 14 in Legal Issues
Relating to Time Charterparties (2008), Ed. Professor D. Rhidian Thomas.

Chapter 2

The Arbitration Act 1996


The Arbitration Act 1996

1. Introduction
2. History
3. Aims
4. Application
5. Interpretation
6. Time limits

1. INTRODUCTION
Most maritime arbitration in London will be governed by the Arbitration Act 1996 (the 1996
Act). This statute came into force on 31 January 1997. It was innovative in many respects,
particularly in setting out a fresh statement of the law and imposing duties on the tribunal to adopt
efficient procedures. The 1996 Act also maintained many of the established features of the English
system, for instance appeals for errors of law. Its main hallmarks are party autonomy and

minimising court intervention. However, many provisions apply as a matter of public interest
regardless of the parties agreement: for example the tribunals duty to act fairly and impartially.
Overall, the 1996 Act has been extremely successful. There is now less anxiety that the English
system is losing ground to competing jurisdictions. Those who use arbitration have generally
responded favourably to the 1996 Act, due largely to the fact that it reflected careful consultation.
For example, a 2006 survey of arbitration users carried out by Bruce Harris for the Commercial
Court Users Committee, the British Maritime Law Association and the London Shipping Law
Centre concluded that the Act is working well. In particular, the authors of the survey concluded
that, despite some unfavourable commentary about the appeals process under the Act (and the
general perception that it had become too difficult to obtain permission to appeal, with the result
that English maritime law was being starved of nourishment), most users felt that it was
effective. The only area of dissatisfaction related to jurisdictional issues, where a significant
proportion of users felt that the arbitral tribunal should have the power to rule finally (i.e., without
review by the courts) on their own jurisdiction. The survey is available on the International
Dispute Resolution Centre website (www.idrc.co.uk). There has been a substantial amount of
litigation under the 1996 Act but its drafting has generally withstood tests except for one error
regarding rights of appeal.1 Overall, the law has settled down remarkably quickly, due in part to
the courts respect for the approach adopted by the Departmental Advisory Committee on
Arbitration Law (the DAC).

2. HISTORY

The Mustill Report


The starting point for the 1996 Act was the 1989 Mustill Report2 produced by the Departmental
Advisory Committee on Arbitration Law (the DAC) under the chairmanship of Lord Justice
Mustill (now Lord Mustill). The DAC had been asked to consider reform of English law, in
particular whether the UNCITRAL Model Law on International Commercial Arbitration (the
Model Law) should be adopted. The Model Law is a statement of rules and principles of
arbitration adopted in 1985 by the United Nations Commission on International Trade Law
(UNCITRAL). It has been implemented in many countries, including Scotland. The Mustill
Report recommended against the adoption of the Model Law on the grounds that English law on
arbitration was sufficiently well developed and satisfactory to its users; the practical disadvantages
of enacting the Model Law would outweigh its potential advantages. The Mustill Report also
decided that radical changes to the content of English arbitral law were not needed. However, it
indicated that the existing law was unsatisfactory since it was mostly found in case law only
accessible to specialist lawyers. The statute law which did exist was dispersed in the Arbitration
Acts of 1950, 1975 and 1979 and various amending statutes such as the Limitation Acts. The old
statutes provided a disjointed and illogically arranged set of rules which were often drafted in
complex terms incomprehensible to the layman.
Recommendations for reform were set out in paragraph 108 of the Report:
In these circumstances we recommend an intermediate solution, in the shape of a new Act with a
subject-matter so selected as to make the essentials of at least the existing statutory arbitration law

tolerably accessible, without calling for a lengthy period of planning and drafting, or prolonged
parliamentary debate. It should in particular have the following features:

(1) It should comprise a statement in statutory form of the more important principles of the
English law of arbitration, statutory and (to the extent practicable) common law.
(2) It should be limited to those principles whose existence and effect should be
uncontroversial.
(3) It should be set out in a logical order, and expressed in language which is sufficiently clear
and free from technicalities to be readily comprehensible to the layman.
(4) It should in general apply to domestic and international arbitrations alike, although there
may have to be exceptions to take account of treaty obligations.
(5) It should not be limited to the subject matter of the Model Law.
(6) It should embody such of our proposals for legislation as have by then been enacted.
(7) Consideration should be given to ensuring that any such new statute should, so far as
possible, have the same structure and language as the Model Law, so as to enhance its
accessibility to those who are familiar with the Model Law.

The Report recommended that the proposed legislation should not attempt to codify the entire
English law of arbitration or provide a restatement in the style of the American Restatements, but
it should do more than merely consolidate the existing statutory provisions since mere
consolidation would leave many important principles hidden in the law reports.

The Marriott Working Group


The initiative towards a new arbitration act was taken up by Mr Arthur Marriott QC who led a
group of lawyers and arbitral institutions (the Marriott Working Group) in a project for the
privatised drafting of the new statute.3 They commissioned Mr Basil Eckersley, a distinguished
arbitrator and barrister, to draft a bill. His work was widely approved by the arbitration industry.
However, in order to obtain the necessary Government support for enactment it was essential that
a new statute should be drafted by a lawyer trained as a parliamentary draftsman. The DAC
recommended that the Department of Trade and Industry should carry the work forward as a
Government bill. This recommendation was taken up by the President of the Board of Trade
(Michael Heseltine MP) in April 1992 and the work was taken forward as a public project under
the supervision of the DTI. The project was carried on with the assistance of the DAC, including
members of the Marriott Working Group.

Work under the auspices of the Department of Trade and


Industry
A former parliamentary draftsman was instructed to prepare a new bill but his draft failed to
follow the structure of the Model Law. Another former parliamentary draftsman was instructed to
produce a consolidating measure.4 Her work was used as the basis for the draft bill which was
published in February 1994 with a consultation paper. The February draft was not warmly
received: many felt that a bolder approach than consolidation was needed and that the draft did
little to improve the accessibility of English arbitral law. It was felt that a new statute should give
clearer emphasis to party autonomy and the role of the courts in supporting the parties choice.

Both commentators and the DAC considered that it was essential to make the format and language
more user-friendly than that of the February 1994 draft.
Lord Justice Saville (now Lord Saville) took over the chair of the DAC from Lord Steyn in the
autumn of 1994 and, together with other members of the DAC, he personally undertook much of
the work involved in the new draft and a consultative paper (the July 1995 Consultative Paper).
Their draft was passed to a parliamentary draftsman, Mr Geoffrey Sellers, to produce the July
1995 draft. Following a consultation period over the summer, the Arbitration Bill was introduced
into the House of Lords in December 1995. In February 1996, the DAC published its Report on
the Arbitration Bill (the DAC Report). The Bill was supported by all parliamentary parties and
underwent the Public Bill Committee Procedure. This procedure, sometimes called the Jellicoe
Procedure, had only previously been used for Law Commission bills. It involved experts giving
evidence on the impact of the proposed statute at the committee stage in the House of Lords. The
Act received Royal Assent on 17 June 1996 and came into force on 31 January 1997.5

3. AIMS OF THE 1996 ACT


The DAC used the recommendations of paragraph 108 of the Mustill Report (set out above) as its
starting point in identifying its aims, but reinterpreted them to the extent that the Report had
expressly rejected a restatement of the English law of arbitration.6 In 1996 the DAC decided that a
bolder approach than consolidation was necessary and in its title the 1996 Act is expressly
described as an Act to restate and improve the existing statutory and common law rules. The
1996 Act aims to restate the basic principles of the English law of arbitration within a logical
structure: it is not an exhaustive code of the law; some aspects such as confidentiality were
deliberately omitted.7 Several fundamental objectives underpin the Act:8

to promote party autonomy: most of the provisions only come into play to support the
arbitration when the parties have not decided what should happen;
to respect the parties decision to choose a private tribunal rather than a court to resolve their
dispute;
to make arbitration a fair, speedy and cost-effective method of dispute resolution by an
impartial tribunal;
to limit court intervention to situations where it is obvious that the arbitral process needs
assistance or there is likely to be a clear denial of justice;
to follow the structure and content of the Model Law as far as possible;
to make the law accessible and user-friendly (plain English was favoured, Latin terms were
avoided, time limits were included alongside the provision to which they apply, provisions
relating to one topic have been located together under headings and recurring terms are
defined in one place).

Unusually, the general aims of the 1996 Act are enunciated as general principles at the outset.
These general principles are routinely referred to by the courts when interpreting the Act. Section
1 provides that:
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.

The main impetus for the 1996 Act came from legal and commercial circles, with the aim of
safeguarding the position of London as a world centre for arbitration.9 The Act also implemented
wider policies: by making the law simpler and more accessible, it was hoped to ensure that
business had access to fair and efficient methods of resolving disputes.10 The Act was passed
following the publication of the Woolf Report11 (which ultimately led to far-reaching reform of
civil procedure, see Chapter 1) and may be perceived as a parallel projectalthough it was
initiated much earlier by the Mustill Report. In addition, the Act was intended to have
deregulatory benefits and encourage the competitiveness of the arbitration industry.12

4. APPLICATION OF THE 1996 ACT

Commencement
The title of Part I of the 1996 Act, Arbitration pursuant to an arbitration agreement, indicates
that it covers arbitration arising by agreement as opposed to compulsory arbitration imposed by
statute or otherwise. (Part I is the part of the Act that is relevant to maritime arbitration and
subsequent references to the Act are to that Part; Part II relates to other matters such as consumer
arbitration agreements, and Part III governs the enforcement of foreign awards). Section 84 makes
clear that the Act applies to arbitral proceedings commenced after it came into force on 31 January
1997 regardless of the date when the arbitration agreement was made.13 Thus the Act had limited
retrospective effect in that it could apply to an arbitration even though the parties agreement to
arbitrate was made before the Act was passed. The question then arose as to whether the Act
applied where no arbitral proceedings had been commenced, for instance where a party seeks a
stay of court proceedings or an extension of time to commence arbitration. The Act does not deal
with this expressly, but the statutory instrument by which it was brought into force makes clear
that it applies to any arbitration application made after 31 January 1997, whether or not arbitral
proceedings have been commenced.14

Relevance of the seat


However, not all arbitrations will be governed by the 1996 Act: they must have some connection
with the English legal system. This connecting factor is the seat of the arbitration: section 2(1) of
the Act provides that it applies where the seat of the arbitration is England, Wales or Northern
Ireland. The seat of the arbitration is ordinarily the place where the parties have agreed that it
should be held. However, the concept of the seat of an arbitration does not refer simply to its
geographical location; it connotes the legal place15 of the arbitration. By choosing the legal
place of the arbitration the parties choose the laws of that place to govern the arbitral proceedings.
Thus the parties could choose London as the seat of the arbitration so that the 1996 Act would

apply, but hearings could take place in other countries, perhaps for the convenience of witnesses
or the arbitrators.16 Section 3 goes on to explain that:
In this Part the seat of the arbitration means the juridical seat of the arbitration designated

(a) by the parties to the arbitration agreement, or


(b) by any arbitral or other institution or person vested by the parties with powers in that
regard, or
(c) by the arbitral tribunal if so authorised by the parties,

or determined, in the absence of any such designation, having regard to the parties agreement and
all the circumstances.
This provision is considered in more detail in Chapter 5, but as a general rule the choice of
London for arbitration will be treated as a designation of London as the seat of the arbitration, so
the 1996 Act will apply. Similarly, the choice of LMAA Terms17 or arbitration under the auspices
of an arbitral institution in London will usually mean that the 1996 Act applies to the arbitration.
In ABB Lummus Global Ltd v Keppel Fels Ltd 18 the parties to a shipbuilding contract had agreed
that disputes shall be referred to the London Court of International Arbitration. Disputes shall
be settled in accordance with Singapore Law. Clarke J held that this amounted to a choice of
London as the seat of the arbitration.
Certain provisions of Part 1 of the 1996 Act will apply even where the seat of the arbitration is not
in England, in particular sections 9 and 11. These provisions apply by reason of the UKs
international obligations under the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards. The courts supportive powers under sections 43 and 44 (to secure the
attendance of arbitral proceedings and grant interim injunctions) will also apply even if the seat of
the arbitration is not in England or has not been designated unless the court considers this
inappropriate. The corollary of this is that, where an arbitration has a foreign seat, the English
court will not generally intervene to rule upon matters which would fall within the jurisdiction of
the courts at the foreign seat (e.g., injunctive relief. In this connection, section 44 of the Act is
intended to confer power on the English court to grant injunctions in support of arbitrations, not to
restrain the arbitration itself.19

Mandatory provisions
In accordance with the policy of enabling the parties to decide for themselves how the arbitration
should be handled the parties may contract out of most provisions of the 1996 Act. However,
some provisions are imposed mandatorily as a matter of public interest and, where the Act applies,
these will apply regardless of the parties agreement and are usefully listed in Schedule 1.20

5. INTERPRETATION OF THE 1996 ACT


The starting point in construing any statute is to give its words their plain, ordinary and natural
meaning. The court should generally give effect to the ordinary meaning of the words used by
Parliament without regard to evidence as to the statutes history or purpose. However, the court
will not adopt a literal approach to the language used. Most questions of interpretation will arise

where a statutes wording is open to more than one interpretation. In interpreting a statute the
court (or arbitral tribunal) should read it as a whole, taking into account the context and facts
known to Parliament when the statute was enacted.21 Thus the courts interpretative role may, in
exceptional cases, enable it to correct clear drafting errors where the parliamentary purpose is
clear.22 The court will also use the various canons of statutory interpretation that reflect common
sense and justice: for instance, a construction which leads to absurdity will be rejected.
Parliamentary materials such as Hansard may be referred to if there is ambiguity in the wording
which was dealt with in Parliament by the Government representatives promoting the legislation.23
These general principles apply to the 1996 Act although the courts have tended to take a
noticeably purposive approach to it. In particular, the courts have been willing to make decisions
on the basis of the spirit or philosophy of the Act.24 It is not surprising that a purposive
approach has been favoured because section 1 expressly sets out the principles upon which it is
founded, and against which it should be construed. This is unusual in an English statute and
demonstrates the firm intention to give effect to party autonomy and minimal court intervention.
In addition, the DAC Report is regarded as an extremely authoritative statement of the purpose of
the various provisions. The DAC recommendations were accepted by Parliament save for minor
drafting changes. Most of the judges who deal with arbitration cases have had practice in the area
and their general readiness to take a purposive approach probably reflects their agreement with the
underlying policy of the 1996 Act.
The drafters of the 1996 Act intended it to restate the law in a clear and accessible way so that it
is readily understandable to all those who are considering arbitration.25 This objective has been
achieved to a large degree, although inevitably there has been litigation as to the correct meaning
of parts of the Act. The proper construction of various provisions of the 1996 Act is considered
throughout this book. The general issues that have arisen concern the extent to which cases under
the old law remain relevant, the relevance of the Model Law in interpreting the 1996 Act and the
authority of the DAC Report.

Relevance of earlier case law


Section 81(1) expressly preserves the role of the common law by stating that Nothing in this Part
shall be construed as excluding the operation of any rule of law consistent with the provisions of
this Part. The DAC commented that it seems to us to be necessary to make clear that the
common law (so far as it is consistent with the Bill) will continue to make its great contribution to
our arbitration law, a contribution that has done much to create and preserve the worldwide
popularity of arbitration in our country. Thus, reliance on previous case law is possible where the
1996 Act does not deal with an issue, (e.g., confidentiality); or if it has left the issue open (e.g.,
regarding what is required for the incorporation of an arbitration agreement by reference to
another contract).26
However, where the Act does address a particular area, the proper approach to construing a
consolidating statute is to give the words their ordinary meaning without recourse to decisions on
the previous legislation unless real and substantial ambiguity arises which cannot be resolved by
the usual canons of construction.27 Approving the dicta of Thomas J, the House of Lords has
indicated that, in general, pre-Act authority is not relevant to its interpretation:28

It is also necessary to consider how the 1996 Act should be interpreted. In his speech already
cited Lord Wilberforce pointed out that Many laymen have to participate in arbitrations and many
arbitrations are conducted by people who are not lawyers (col 777). Can they realistically be
asked to interpret the 1996 Act in the light of pre-existing case law? Clearly not. In Seabridge
Shipping AB v AC Orssleffs EFTFs A/S [1999] 2 Lloyds Rep 685 at 690 Thomas J (now
Thomas LJ), a judge with enormous experience in this field, made valuable observations on which
I cannot improve. He said, at p 690:

One of the major purposes of the Arbitration Act 1996 was to set out most of the important
principles of the law of arbitration of England and Wales in a logical order and expressed in a
language sufficiently clear and free from technicalities to be readily comprehensible to the
layman. It was to be in user friendly language. (See the Report on the Bill and the Act made
by the Departmental Advisory Committee, published in Arbitration International, vol 13, at p
275.)
As this has been the actual achievement of the Act, it would in my view be a retrograde step if
when a point arose reference had to be made to pre-Act cases. Reference to such cases should
only generally be necessary in cases where the Act does not cover a pointas, for example,
in relation to confidentiality or where for some other reason it is necessary to refer to the
earlier cases. A court should, in general, comply with the guidance given by the Court of
Appeal and rely on the language of the Act. International users of London arbitration should,
in my view, be able to rely on the clear user-friendly language of the Act and should not
have to be put to the trouble or expense of having regard to the pre-1996 Act law on issues
where the provisions of the Act set out the law. If international users of London arbitration
are not able to act in that knowledge, then one of the main objectives of the reform will have
been defeated.

The reference to an earlier decision of the Court of Appeal is to Patel v Patel [2000] QB 551. I
would respectfully endorse the observation in Seabridge.
Despite, this, reliance on case law may be useful where the statute has enacted rules set out in case
law: for instance, section 7 states the common law principle of separability, and pre-Act
authorities were referred to by the House of Lords when construing this provision.29
In general, the courts have been pragmatic in relying on case law under the previous system where
it assists.30 This is justified on grounds of consistency and justice: the safe and well-known rule
of construction is to assume that the legislature when using well-known words upon which there
have been well-known decisions uses those words in the sense which the decisions have attached
to them.31

Recourse to the Model Law


The DAC Report maintained that the Model Law should not be adopted wholesale but that its
structure had been followed and many provisions of the 1996 Act reflected its content.32 The DAC
had adopted the policy of party autonomy and minimal court intervention that underlies the Model
Law. The DAC also recognised the need to make the English system more accessible to
international users and more competitive with other jurisdictions.33 The fact that many provisions
reflect the Model Law but do not reproduce its wording gives the courts wide discretion. In

some instances the court has relied on the wording of the Model Law,34 in others it has rejected it
on the basis that the same wording has not been adopted.35 Overall, however, the courts will take a
purposive approach where it is clear that a provision was intended to follow the Model Law.

Use of the DAC report


Under traditional principles of statutory interpretation preparatory materials such as the DAC
Report should only be taken into account where there is an ambiguity in the statutes
wording.36 However, in many cases relating to the 1996 Act the courts have made reference to the
Report and treated it as an authoritative statement as to the Acts meaning. In Cetelem SA v Roust
Holdings Ltd,37 the Court of Appeal described the DAC Report as a valuable aid to construction,
and referred to the many other cases where the courts had relied upon it.

6. TIME LIMITS
In the interests of speedy dispute resolution the 1996 Act gives effect to time limits for various
steps in an arbitration or for challenging an arbitral award. Different types of time limits can be
identified:

(a) time limits applicable to the making of an appeal or application to court (e.g., section
70(3) imposes a 28-day time limit from the making of an award for making an appealit is
considered in Chapter 22);
(b) time limits agreed by the parties for any matter relating to the arbitral proceedings (e.g.,
under paragraph 9 of the LMAA Terms each party is required to appoint an arbitrator not later
than 14 days after a request to do so);
(c) time limits specified in the 1996 Act applying to the arbitral proceedings in default of
agreement (e.g., section 17 imposes a 7-day limit for appointing an arbitrator).

Reckoning time limits


Court rules will apply in reckoning the time limits applicable to court applications so that the 28day period will not include the day on which the period begins.38 Thus if the award is dated 2 July,
the application must be made on or before 30 July. As regards time limits agreed by the parties or
time limits specified in the 1996 Act, the parties may agree on how time is reckoned, but in the
absence of agreement, section 78 applies. It provides that:

(3) Where the act is required to be done within a specified period after or from a specified
date, the period begins immediately after that date;
(4) Where the act is required to be done a specified number of clear days after a specified
date, at least that number of days must intervene between the day on which the act is done and
that date.
(5) Where the period is a period of seven days or less which would include a Saturday,
Sunday or a public holiday in the place where anything which has to be done within the
period falls to be done, that day shall be excluded.

Extension of time limits

The 1996 Act also allows for time limits to be extended in limited circumstances. The time limits
for making court applications under sections 67 to 69 of the 1996 Act apply regardless of the
parties agreement but it would be open for a party not to take a point on a late application
(although the court could still dismiss the application on grounds of it being out of time). The
court has power to extend these time limits under section 80(5). The principles governing its
discretion are discussed in more detail in Chapter 22.
Section 79 of the 1996 Act applies to the extension of time limits relating to the arbitral
proceedings which are agreed by the parties or specified in that Act.39 Section 79 provides:

(1) Unless the parties otherwise agree, the court may by order extend any time limit agreed
by them in relation to any matter relating to the arbitral proceedings or specified in any
provision of this Part having effect in default of such agreement.
This section does not apply to a time limit to which section 12 applies (power of court to
extend time for beginning arbitral proceedings, etc.)
(2) An application for an order may be made
o (a) by any party to the arbitral proceedings (upon notice to the other parties and to the
tribunal), or
o (b) by the arbitral tribunal (upon notice to the parties).
(3) The court shall not exercise its power to extend a time limit unless it is satisfied
o (a) that any available recourse to the tribunal, or to any arbitral or other institution or
person vested by the parties with power in that regard, has first been exhausted, and
o (b) that a substantial injustice would otherwise be done.
(4) The courts power under this section may be exercised whether or not the time has already
expired.
(5) An order under this section may be made on such terms as the court thinks fit.

In most cases extensions of time can be agreed or dealt with by the tribunal, only exceptional
cases should require court applications. However, the fact that the parties have agreed on a time
limit in the arbitration clause or institutional rules will not exclude the courts jurisdiction under
section 79.40 The requirement of substantial injustice leaves the court with a wide discretion as
to whether or not to grant an extension of time. Relevant considerations will include the parties
choice of arbitration as a speedy method of dispute resolution, whether the delay is excusable, the
amount at stake, the merits (if they are plain), and any prejudice caused by the delay.41
1 Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586.
2 [1989] 6 Arbitration International 1.
3 See Steyn LJ (as he then was) in [1994] 10 Arbitration International 1.
4 Denning Lecture [1995] 61 Arbitration 157 at 159.
5 The Arbitration Act 1996 (Commencement No 1) Order 1996.
6 Paragraph 107 of the Mustill Report [1990] 6 Arbitration International 36.
7 Paragraph 17 of the DAC Report.

8 See the Explanatory Memorandum accompanying the 1996 Bill, the July 1995 Consultative
Paper and the DAC Report generally.
9 Page 2 of the July 1995 Consultative Paper.
10 Page 1 of the July 1995 Consultative Paper.
11 Access to Justice: Interim Report to the Lord Chancellor on the Civil Justice System in
England and Wales by the Rt Hon the Lord Woolf, published in June 1995.
12 Page 2 of the July 1995 Consultative Paper.
13 The Arbitration Act 1996 (Commencement No 1) Order 1996the meaning of
commencement of arbitral proceedings is defined in section 14. See Chapter 10 on appointments.
14 The Arbitration Act 1996 (Commencement No 1) Order 1996.
15 ABB Lummus Global Ltd v Keppel Fels Ltd [1999] 2 Lloyds Rep 24 at 33, and Union of
India v McDonnell Douglas Corporation [1993] 2 Lloyds Rep 48 at 50, Dubai Islamic Bank
PJSC v Paymentech Merchant Services Inc [2001] 1 Lloyds Rep 65, Arab National Bank v ElAdbali [2004] EWHC 2381 (Comm); [2005] 1 Lloyds Rep 541, DAC Supplementary Report on
the Arbitration Act 1996, paragraph 11.
16 Section 34(2)(a) of the 1996 Act, Naviera Amazonica Peruana SA v Cia Internacional de
Seguros del Peru [1988] 1 Lloyds Rep 116 at 121.
17 Paragraph 6 of the LMAA Terms provides that the parties agree that the seat of the arbitration
is in England. (See Chapter 1 for the application of the Terms.)
18 [1999] 2 Lloyds Rep 24.
19 See Weissfisch v Julius [2006] EWCA Civ 218; [2006] 1 Lloyds Rep 716.
20 Section 4 of the 1996 Act, paragraph 19 of the DAC Report.
21 Black-Clawson International Ltd v Papierwerke-Waldhof Aschaffenburg AG [1975] 2 Lloyds
Rep 11 at 14.
22 Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586.
23 Pepper v Hart [1993] AC 593.
24 E.g., Patel v Patel [2000] QB 551; Henry Boot Construction (UK) Ltd v Malmaison Hotel
(Manchester) Ltd [2000] BLR 509.
25 Page 2 of the July 1995 Consultative Paper.
26 Section 6(2) of the 1996 Act, paragraph 42 of the DAC Report, Trygg Hansa Insurance Co
Ltd v Equitas Ltd [1998] 2 Lloyds Rep 439; Delos (Owners of cargo lately laden on
board) v Delos Shipping Ltd, The Delos [2001] 1 Lloyds Rep 703.
27 Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd [1995] 2 Lloyds Rep
197; R v Environment Secretary ex p. Spath Holme Ltd [2001] 2 WLR 15.

28 Lesotho Highlands Development Authority v Impregilo SpA and others [2005] UKHL 43;
[2005] 3 WLR 219, per Lord Steyn at para 19.
29 Premium Nafta Products Ltd v Fili Shipping Company Ltd [2007] UKHL 40; [2008] 1 Lloyds
Rep 254; see also Seabridge Shipping AB v AC Orssleffs EFTFs A/S. [1999] 2 Lloyds Rep 685
at 690, where Thomas J referred to Patel vPatel [1999] 3 WLR 322.
30 E.g., Judge Toulmin QC relied on case law under the 1950 Act in R Durtnell & Sons
Ltd v Secretary of State for Trade and Industry [2001] 1 Lloyds Rep 275.
31 Greaves v Tofield (1880) 14 Ch D 563 at 571.
32 Paragraph 4 of the DAC Report and generally.
33 Page 2 of the July 1995 Consultative Paper. See also the Mustill Report, paragraph 108.
34 Patel v Patel [2000] QB 551; Federal Insurance v Transamerica Occidental Life Insurance
Co [1999] 2 Lloyds Rep 286.
35 Vosnoc Ltd v Trans Global Projects Ltd [1998] 1 Lloyds Rep 711; Trygg Hansa Insurance Co
Ltd v Equitas Ltd [1998] 2 Lloyds Rep 439.
36 Black-Clawson International Ltd v Papierwerke Waldhof Aschaffenburg AG [1975] 2 Lloyds
Rep 11; Mustill & Boyd 2001 Companion, page 68. The House of Lords in BTP Tioxide
Ltd v Pioneer Shipping Ltd [1982] AC 724 at 730 refused to consider the report that led to the
enactment of the Arbitration Act 1979.
37 [2005] EWCA Civ 618; [2005] 2 Lloyds Rep 494 at para 40
38 Section 80(5) of the 1996 Act, CPR Part 2, paragraph 2.8.
39 The DAC had originally intended that section 79 would apply to applications to court, see
paragraphs 294 and 382 of the DAC Report, DAC Supplementary Report on the Arbitration Act
1996, paragraph 41.
40 John Mowlem Construction plc v Secretary of State for Defence [2000] CILL 1655.
41 Gold Coast Ltd v Naval Gijon SA [2006] EWHC 1044; [2006] 2 Lloyds Rep 4000, Pirtek
(UK) Ltd v Deanswood Ltd [2005] EWHC 2301 (Comm); [2005] 2 Lloyds Rep 728, discussed
further in Chapter 19.

hapter 3

Mediation and Arbitration


Mediation and Arbitration

1. Introduction
2. Agreements to mediate
3. LMAA/Baltic Exchange Mediation Terms

4. Procedure
5. Confidentiality in mediation
6. The role of arbitrators in encouraging mediation
7. Costs implications of mediation
8. EU Directive 2008/52 on mediation

1. INTRODUCTION
Alternative dispute resolution (ADR) is a broad term covering methods of resolving disputes
without resort to adjudication by a court or arbitrator. ADR has become a prominent potential
alternative to these conventional methods of dispute resolution because the latter are increasingly
associated with unduly high costs. The term ADR is most commonly applied to procedures such
as mediation or conciliation where parties negotiate a settlement agreement with the assistance of
a neutral third party. Mediation and conciliation are the most common forms of ADR. Both terms
have broadly similar meaning and are often used interchangeably. Mediation has now become the
more common term (and the most common form of ADR) and accordingly this chapter deals
specifically with mediation.
The essential difference between arbitration and ADR is that in arbitration a binding decision is
imposed on the parties whereas the purpose of ADR is to enable the parties to reach their own
binding agreement. In ADR the parties remain in control of the outcome so that its success
depends on the parties cooperation and genuine willingness to compromise. The key features
shared by ADR and arbitration are that they are both confidential procedures used for resolving
disputes and they are entered into by agreement. In commercial disputes the neutral third party
(typically a mediator) will usually be chosen by the parties. This will generally be someone with
respected experience in the area of the dispute or mediation, or a senior lawyer. A number of
LMAA arbitrators act from time to time in this capacity. The mediator will invariably be paid a
fee agreed by the parties in advance, broadly based on the time spent in dealing with the case.
ADR in shipping disputes was relatively slow to become established. This reflected a view that if
compromise were a realistic possibility then this could usually be achieved without resorting to a
formal procedure. Parties sometimes considered that if they could not reach a commercial
settlement by themselves then mediation would be unlikely to succeedit would be a waste of
further time and money. However, perceptions have changed and parties are finding mediation
increasingly attractive. Parties now have more experience of mediation and recognise that a
formal procedure may be effective to resolve apparently unbridgeable differences. A reasonable
settlement will generally be more preferable for commercial parties than resolving a dispute by
arbitration. In particular the parties will have agreed on the outcome rather than having had a
decision imposed on them and where successful, mediation is invariably cheaper, quicker and less
damaging to commercial relations than arbitration. The costs consequences of refusing to mediate
(see below) have also become a further incentive for parties to attempt mediation.
This chapter is intended to provide a brief introduction to mediation in relation to resolving
disputes that would otherwise be determined in London arbitration. Reference to more detailed
works is recommended for discussion in more depth.1

2. AGREEMENTS TO MEDIATE OR USE ADR

Mediation agreements in shipping contracts are relatively rare. Most shipping contracts contain a
relatively simple arbitration clause and if the parties decide to mediate after a dispute has arisen
then they will conclude an additional mediation agreement. At this stage parties will often use
institutional mediation rules (such as the LMAAs 2009 Mediation Terms) or use a standard form
mediation agreement, possibly amended to cover any specific needs of the parties. The mediator
chosen may even suggest using his own standard agreement. These agreements or mediation rules
will usually cover matters such as the appointment process, the mediators fees, costs,
confidentiality and the termination of the mediation process. It may be useful to agree to suspend
limitation periods during the mediation process (particularly in shipping disputes with short timebar periods). Ordinary contractual principles govern such agreements.
Some parties will include more complex dispute resolution clauses in their contracts, sometimes
called hybrid clauses or escalation clauses, that will provide for different methods of dispute
resolution. Typically they will provide for one or more alternative dispute resolution procedures to
be adopted by the parties to precede any arbitration. The wordings of such clauses vary
enormously, but often provide for the following as a precursor to arbitration:

the parties to negotiate in good faith;2


the chief executives of each party to meet and endeavour to resolve the dispute amicably;3
reference of a dispute for expert determination;4
mediation under specific institutional rules.5

The parties may also agree that some disputes are referred to arbitration and others to a different
form of dispute resolution. The effect of any of these types of clauses will depend largely on their
wording and care should be taken when drafting them to ensure that they have the intended effect.
Where possible, the courts will modify the arbitration provisions to give effect to the intentions of
the parties and to ensure that the clause works sensibly.6
The most common issue that arises in relation to these types of clauses is whether the initial
procedure is a condition precedent to the right to arbitrate. This will raise questions as to whether
provisions for such procedures are enforceable. The traditional position under English law is that
agreements to negotiate are not binding because they lack sufficient certainty to be
enforced.7 However, the courts are becoming increasingly willing to give effect to the parties
intentions in this type of clause8 and have recognised the benefits of mediation. Accordingly the
courts will give effect to provisions that parties use specific procedures such as mediation,9 or
expert determination,10 but will not give effect to more vague or general undertakings to negotiate.
In Holloway v Chancery Mead Ltd 11 Ramsey J put the requirements fairly high in suggesting that
an ADR clause would be treated as enforceable if it met the following three requirements: First,
that the process must be sufficiently certain in that there should not be need for an agreement at
any stage before matters can proceed. Secondly, the administrative processes for selecting a party
to resolve the dispute and to pay that person should also be defined. Thirdly, the process or at least
a model of the process should be set out so that the detail of the process is sufficiently certain.
Ramsey Js comment was obiter and the suggested requirements are unlikely to be applied rigidly.
In practice the requirements will usually be satisfied by the choice of institutional rules for the
mediation (such as LMAA or CEDR rules) and the most important consideration in deciding

whether the agreement to mediate is enforceable is whether it is sufficiently well defined that it
can be clearly determined whether a party has complied.
Even if the ADR provision is enforceable in principle, a further issue that may arise is whether it
is appropriate for a tribunal to stay the arbitration or court proceedings while the parties comply
with the contractual provisions on mediation. This will be a matter of discretion and will depend
on factors such as whether the mediation has any prospect of success, whether there has been
undue delay in raising the point and whether the costs of mediation would be disproportionate.
In Cable & Wireless plc v IBM United Kingdom Ltd 12 the parties had agreed an escalation clause
under which the parties agreed to submit disputes to negotiation by senior executives, failing
which the parties shall attempt in good faith to resolve the dispute or claim through an ADR
procedure as recommended to the parties by CEDR (a mediation organisation). Colman J was
willing to give effect to this clause by ordering a stay of proceedings while the parties complied
with the agreement on ADR. The ADR procedure could be completed within a few weeks with no
material prejudice to either party. In the event that ADR was unsuccessful the parties could
reinstate the claim. He considered that the parties agreement on CEDR mediation was of
sufficient certainty for the court to ascertain whether it had been complied with and that as a
matter of public policy, as endorsed by the rules of civil procedure, the courts should be giving
effect to parties agreements to mediate.13
Sometimes failure to complete a procedure intended as a precursor to arbitration will be raised as
a challenge to the jurisdiction of any arbitral tribunal appointed under the clause. This type of
challenge would raise issues as to the effectiveness of the agreement to mediate (see above) and
whether the intended procedure was a condition precedent to the right to arbitrate. It will be
relatively rare that non-compliance with an agreement to mediate can be successfully raised as a
ground for challenge to an arbitration award, since normally a party will have lost the right to
object by failing to raise the objection at the outset.14
Another issue that arises is whether the court or the arbitral tribunal should decide on the legal
effect of such clauses. Any question as to whether an ADR clause affects the jurisdiction of an
arbitral tribunal would ordinarily be ruled upon by the tribunal in the first instance with the
possibility of subsequent application to court under section 67 of the 1996 Act.15 However, the
court would be willing to rule on such issues where this would be most practical, typically where
the matter is likely to fall for determination by the court in any event or the tribunal has not yet
been appointed.16
In Holloway v Chancery Mead Ltd,17 the parties disagreed as to the meaning of a construction
contract arbitration clause which required claims to be referred to a dispute resolution service
before any arbitration was commenced. Ramsey J rejected an argument that this issue was to be
determined by the tribunal: it would be unfair if the parties could not raise such an issue in court
and judicial reluctance to grant declarations as to whether a party is entitled to arbitrate (deriving
from Vale Do Rio Doce Navegacao SA & Anor v Shanghai Bao Steel Ocean Shipping Co Ltd 18)
would be less likely to apply where the tribunal has not yet been appointed.

3. LMAA MEDIATION TERMS

Many members of the LMAA have specialist training in mediation and accept appointments as
mediators. In 2002 the LMAA introduced Mediation Terms and in 2009 the LMAA teamed up
with the Baltic Exchange to establish a mediation service for shipping and commodity disputes.
The aim is for senior Baltic Exchange members and LMAA members trained in mediation to
provide mediation services. For this purpose the 2002 Mediation Terms were revised (mainly as to
the procedure for appointing a mediator) so as to provide the LMAA/Baltic Exchange Mediation
Terms (2009) (the 2009 Mediation Terms). These are likely to be the preferred terms for LMAA
members undertaking mediations.
The 2009 Mediation Terms envisage the commencement of a mediation procedure whereby the
parties to a dispute appoint a single mediator to take appropriate steps to assist the parties in
reaching an amicable settlement. If parties to a dispute cannot agree on a mediator then the Terms
make provision for appointment of a mediator. If both parties to a dispute are members of the
Baltic Exchange then the 2009 Mediation Terms provide that they may apply to the Chairman of
the Baltic Exchange for appointment of a mediator. Otherwise the parties may apply to the
President of the LMAA for appointment of a mediator.
The 2009 Mediation Terms expressly provide that the parties should cooperate in good faith with
the mediator in submitting written materials and attending meetings. On termination of the
mediation procedure the mediator will give written notice to the parties of the costs of the
mediation. These costs are to be paid in equal proportions unless he orders otherwise. They would
include expenses incurred by him in the mediation plus his fees which are assessed with regard to
the time involved, the amount and complexity of the dispute. Normally each party bears its own
legal costs although the mediator is given express power to make costs orders where a party has
failed to co-operate so as to thwart the mediation procedure or to cause increased costs.

4. PROCEDURE
ADR procedures are extremely flexible although it is common to agree on institutional rules or a
model procedure or for a procedural framework to arise from the mediation agreement concluded
between the parties and the mediator. Although lawyers are frequently involved in mediations, an
important aspect of any mediation is the direct involvement of the parties in dispute, and in
particular someone who has authority to conclude a settlement agreement. This usually means that
a fairly senior representative of each party, with authority to settle, should attend the mediation.
In each case the procedure will be tailored to the nature of the dispute and the parties needs.
However, most mediations follow a basic pattern. In advance of the mediation each party will
commonly provide the mediator (and the other party) with a case summary and important
supporting documents such as the contract in issue, key correspondence or an experts report on a
critical issue. The case summary will usually set out the background to the dispute and the parties
relationship, identify the main issues and where the parties stand, in particular in relation to their
objectives in mediating, costs at stake and past settlement attempts.
The mediation will usually start with a joint meeting with both parties and the mediator (although
the mediator may discuss the matter separately with each party before the joint meeting). The
mediator will normally commence by giving a brief introduction as to his role and then each party
will give a short presentationsometimes called an opening statement. This will usually introduce

each partys position in relation to the dispute and focus on what each party wants to achieve in
the mediation.
The mediator may then hold separate meetings with the representatives of both parties, asking
them realistically to put forward the strengths and weaknesses of their case. Most mediators will
take a facilitative approach and resist indicating their views as to the likely outcome. However, in
some cases the mediator may be more willing to identify the determinative issues and express his
views on them. The mediation will be an opportunity to assess the likely overall cost of the
dispute (taking into account legal fees and possible damages, but also management time and
commercial reputation) and to explore potential settlement options. The mediator will usually
liaise between the parties and facilitate direct discussion between them. If the parties draw closer
to settlement proposals he may assist in drawing up a settlement agreement.
If a settlement agreement is not concluded at the mediation (or shortly thereafter) then various
options are available depending on the parties willingness to take settlement discussions further.
If a firm impasse has been reached then the parties may terminate the mediation and revert to the
arbitral process. However, they may want to take the negotiations further and ask for the
mediators continued assistance, whether at an adjourned mediation or simply by continuing
availability to communicate with the parties.
ADR is not covered by the 1996 Act and common law principles (typically of contract, tort and
confidentiality) are applied to disputes arising out of the procedure, for instance a disagreement as
to the effect of any settlement reached.

5. CONFIDENTIALITY IN MEDIATION
All stages of the mediation will be confidential (unless the parties agree otherwise) and the
information or views exchanged within the mediation must generally not be used subsequently in
arbitration or for other purposes. The principle of confidentiality in mediation currently has two
sources. First, it derives from the parties express19 or implied agreement that the mediation will
be confidential. Most mediations will be preceded by a mediation agreement which will contain a
clause on confidentiality. However, even if there is no express agreement, there would be an
implied agreement reflecting the confidentiality that is necessary for the mediation to work
effectively. Secondly, confidentiality in mediation is a reflection of the underlying public policy
that parties should be encouraged, so far as possible, to resolve their disputes by negotiation, and
should not be discouraged by the prospect that the content of the negotiations could be used
against them in subsequent litigation.20 EU Directive 2008/52 on mediation also recognises
confidentiality in the mediation of EU cross-border disputes (see below on the scope of the
directive) with exceptions where necessary for overriding considerations of public policy or for
the enforcement of a settlement agreement resulting from mediation (this would probably also
include situations where there is an issue as to whether the dispute was settled). When
implemented (as required by 2011), it is likely to give rise to specific provision for confidentiality
in mediation.
One aspect of confidentiality of mediation is the rule that communications in a mediation are not
admissible in subsequent litigation. Such communications are regarded as privileged from
disclosure on the basis of the rule protecting without prejudice communications. Without

prejudice communications are those that pass between the parties as part of settlement
negotiations without prejudice to their case in the proceedings. The courts have firmly taken the
view that mediation takes the form of assisted without prejudice negotiation and that, with
some exceptions, what goes on in the course of mediation is privileged, so that it cannot be
referred to or relied on in subsequent court proceedings if the mediation is unsuccessful.21
The courts have not yet accepted that a distinct mediation privilege attaches to the mediation
process.22 Accordingly, the exceptions to confidentiality in mediation are based on general
principles of confidentiality and the without prejudice rule. In deciding admissibility of
communications within a mediation, broadly the same exceptions apply as under the without
prejudice rule relating to litigation.23
In Cumbria Waste Management Ltd v Baines Wilson,24 the claimant used mediation to settle a
dispute with a third party and then sued its solicitor for negligence giving rise to the dispute with
the third party. An issue in the negligence proceedings was whether the dispute with the third
party was reasonably settled and the defendant solicitor sought disclosure of documents relating to
the mediation but the third party refused consent to such disclosure. HHJ Frances Kirkham refused
to order disclosure on grounds that the documents were protected by the without prejudice rule.
Privilege will obviously not cover documents that have already been openly disclosed (e.g., the
governing contract, the pleadings, or expert reports that have been exchanged) even where such
documents might otherwise come within a broadly worded confidential-ity clause covering all
documents exchanged in the mediation. One exception to the without prejudice privilege attaching
to communications in a mediation is where an issue arises as to whether the mediation resulted in
a concluded or enforceable settlement agreement.25
In Brown v Rice 26 the parties mediation agreement had expressly provided that all statements in
the mediation should be confidential and that any agreement would not be binding until reduced
into writing. No settlement was reached at the mediation but an offer was left on the table
overnight and alleged to have been accepted in a telephone conversation the following day. Stuart
Isaacs QC, sitting as a Deputy Judge, admitted evidence as to what happened at the mediation in
order to determine whether the dispute had been settled.

6. THE ROLE OF ARBITRATORS IN ENCOURAGING MEDIATION


Under the English court rules, parties are expressly required to consider the option of ADR and
the courts often allow time within the pre-trial timetable for its use. The courts increasingly
consider that mediation would be appropriate in the majority of cases since it has established a
high success rate. EU Directive 2008/52 on mediation also makes clear that the courts can invite
the parties to use mediation. The Commercial Court currently offers the facility of early neutral
evaluation; this is where a judge offers a without prejudice, non-binding evaluation of the merits
of a case (or certain issues) at an early stage in the proceedings. The judge will then take no
further part in the case.
Maritime arbitrators have generally not been as active as judges in encouraging the use of
mediation. First, arbitrators are chosen and paid by the parties to resolve the dispute, so they
mayperhaps understandablybe reluctant to encourage the parties to use another neutral third
party (who will also charge further fees) to assist in resolution. Secondly, encouraging ADR

within litigation reflects the fact that it saves court time; this is relevant because a judge is
required to take into account the appropriate allocation of the courts resources towards the
various cases before it. In contrast, arbitrators face no such issue as to the appropriate allocation of
public resources when making decisions. Thirdly, early neutral evaluation (or a comparable
procedure) is unlikely to occur within arbitration because it will not be as easy to pass the case on
to another tribunal. If the arbitrator is unsuccessful in prompting settlement, the parties may think
that he has unfairly pre-judged the case before giving them a reasonable opportunity to put their
case. Fourthly, although the EU directive will give courts the power to invite parties to mediate, it
remains to be seen whether the implementing legislation will also empower arbitral tribunals to
give similar orders. These differences between court proceedings and arbitration may also affect
the costs implications of refusing to mediate (see below).
Notwithstanding these differences, in some cases an arbitrator will raise the option of mediation or
allow time for the parties to pursue it. This typically arises where both parties have shown a
genuine interest in mediation, as if one party is firmly resisting the process, it is less likely to be
useful. The questionnaire which the Second Schedule to the LMAA Terms requires parties to
complete after the exchange of submissions specifically asks whether they have considered
mediation. An arbitrator could also give an indication of his views on the merits at an early stage
but he must make it clear that these are only provisional views and he is not pre-judging the
issue.27 If an issue seems clear-cut or potentially determinative it may be safer to propose deciding
it as a preliminary issue (see Chapter 16). The courts have not yet decided whether an arbitrator
could stay an arbitration in favour of mediation in the absence of both parties consent. However,
it is arguable that arbitrators have such powers (unless there is express agreement to the contrary)
since these measures, if appropriate to the circumstances of the case, would probably fall within
their duty to adopt suitable procedures for a fair and efficient resolution of the dispute under
section 33 of the 1996 Act. The courts would probably be reluctant to remove an arbitrator who
took active steps to encourage ADR in an appropriate case as this is regarded as part of dealing
with a case justly and efficiently under the CPR. Powers conferred on courts to invite parties to
mediate under EU Directive 2008/52 may also provide further support for arbitrators making
orders inviting the parties to mediate.
In some jurisdictions (e.g., Singapore) legislation expressly recognises that an arbitrator may
switch roles between arbitrator and mediatorthis is sometimes called a med/arb procedure. This
type of procedure is unlikely to be adopted in London maritime arbitration where the roles of
mediator and arbitrator are generally kept entirely separate. Unless the parties have specifically
agreed upon it, an arbitrator should generally avoid any attempt to mediate or assist in settlement
discussions as this is likely to give rise to the appearance of bias.28

7. COST IMPLICATIONS OF MEDIATION


Most mediations are preceded by a mediation agreement which will deal with costs. The usual
agreement is that each party bears equally the costs of the mediation. This will ordinarily include
the mediators fees and any other expenses such as room booking fees. The mediator (or the
organisation administering the mediation) will ordinarily be given power to fix the costs of the
mediation. Each party will usually bear its own legal costs incurred in mediating (and any other
costs, e.g., the attendance of witnesses); such costs would, unless otherwise agreed, not ordinarily

be treated as the costs of the arbitration subject to award by the tribunal. However, it is possible
for the parties to agree that, if the matter does not settle at mediation, the mediator or the arbitral
tribunal may assess and award costs incurred by the parties in mediating. For instance, under the
2009 Mediation Terms the mediator is given express power to make costs orders where a party
has failed to co-operate so as to thwart the mediation procedure or to cause increased costs. In the
absence of this type of agreement the costs of mediating will not usually be recoverable from the
other party.

Costs implications of refusing to mediate


The general rule in English court proceedings and arbitration is that the unsuccessful party pays
the costs of the successful party.29 The most common exception to this general rule is where the
unreasonable conduct of the successful party makes it inappropriate to award them the whole or
part of his costs. In the context of court proceedings, there has been considerable case law on the
issue of whether a successful partys refusal to mediate justifies a departure from the general rule,
such that the successful party is not awarded all his costs. The leading case is Halsey v Milton
Keynes General NHS Trust.30 It established that a court may deprive a successful party of his costs
(or part of them) where it refused to mediate, but the burden falls upon the unsuccessful party to
establish that the successful party unreasonably refused to agree to mediate. Each case will depend
on its facts but the Court of Appeal considered that the following considerations would be relevant
to the question of whether a party unreasonably refused to mediate:

(a) the nature of the dispute(e.g., allegations of fraud may not lend themselves to
mediation);
(b) the merits of the casea party who reasonably considers that its case is watertight may be
justified in refusing to mediate;
(c) the use of other settlement methods;
(d) the disproportionate cost of mediationthis will be most relevant where the amount at
stake is relatively small;
(e) delayif mediation is suggested late in the day it may be reasonable to refuse;
(f) whether mediation has a reasonable prospect of success;
(g) the encouragement given by the tribunalwhere a successful party refuses to mediate
despite the courts encouragement then it will be easier to show that the refusal was
unreasonable.

The Court of Appeal made clear, however, that a party is entitled to adopt whatever position it
wishes within a mediation; such conduct would remain confidential and would not be taken into
account in assessing costs.
Halsey v Milton Keynes General NHS Trust has some application in arbitration since it is open to
a party to ask the arbitrator to take into account a partys unreasonable behaviour in assessing
whether it is entitled to all its costs of the arbitration. However, judges have given much more
emphasis than arbitrators to the use of ADR for resolving disputes that would otherwise go to trial
and, for reasons set out above, they are much more likely to encourage the parties to mediate.
Accordingly, judges are much more likely than arbitrators to consider it appropriate to penalise a
party for unreasonably refusing to mediate. An arbitrator is most likely to take such conduct into

account in awarding costs where he has accepted at an earlier stage that the case would be
appropriate for mediation.

8. EU DIRECTIVE 2008/52
In 2008 the European Union adopted a directive (the Directive) on cross-border mediation in
civil and commercial disputes. The Directive reflected a common consensus that mediation should
be encouraged as a speedy and cost effective alternative to litigation. It applies where two or more
parties to a cross border dispute of a civil or commercial nature attempt by themselves, on a
voluntary basis, to reach an amicable settlement with the assistance of a mediator. A cross-border
dispute is defined here as being a dispute where one party is domiciled in a Member State other
than that of any other party (the Directive does not cover Denmark) and would include disputes
that are subject to an arbitration clause. The measures set out in the directive must be implemented
in national legislation by 2011 so the UK Parliament should adopt legislation within that
timescale. Its key measures aim to encourage and improve mediation within the EU.

The Directive obliges Member States to encourage the training of mediators and the
development of voluntary codes of conduct for mediators and organisations providing
mediation services.
It gives courts the right to invite the parties to use mediation and attend an information
meeting on mediation if the judge deems it appropriate.
It will enable parties to apply to enforce settlement agreements concluded following
mediation in a similar way to judgments.
It protects the confidentiality of mediation. The parties or the mediator cannot be compelled
to give evidence about what took place during mediation in subsequent proceedings
(including arbitration) between the parties except where there are overriding public policy
considerations or where disclosure is necessary for enforcement of the settlement resulting
from mediation.
The Directive lays down measures on limitation periods intended to ensure that, when the
parties engage in mediation, any such period will be suspended or interrupted.

The Directive applies to the mediation of many shipping disputes which involve parties from
different EU states. However, it is unlikely to make a significant change to arbitration or
mediation in London of shipping disputes since the practice and law of mediation within the UK is
already well developed. In particular, most mediators in London have training, the courts already
encourage parties to use mediation and confidentiality is a recognised aspect of mediation. The
provisions on enforcement, confidentiality and limitation periods are the main measures that are
likely to make substantive changes. However, the Directive and implementing legislation is likely
to increase awareness of mediation and go further in making it an established method for resolving
disputes.
1 E.g. Mackie, Miles, Marsh and Allen, The ADR Practice Guide: Commercial Dispute
Resolution (3rd edn).
2 Paul Smith Ltd v H & S International Holding Inc [1991] 2 Lloyds Rep 127, Petromec
Inc v Petroleo Brasiliero SA [2005] EWCA 891; [2006] 1 Lloyds Rep 121.

3 Halifax Financial Services & Intuitive Systems [1999] 1 All ER (Comm) 303.
4 Channel Tunnel Group v Balfour Beatty Construction Ltd [1993] 1 AC 334, JT Mackley & Co
Ltd v Gosport Marina Ltd [2002] EWHC 1315.
5 Cable & Wireless plc v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm); [2002] 2 All
ER (Comm) 1041.
6 Film Finance Inc v The Royal Bank of Scotland [2007] EWHC 195 (Comm); [2007] 1 Lloyds
Rep 382.
7 Courtney & Fairburn Ltd v Tolaini Brothers (Hotels) Ltd [1975] 1 WLR 297, Paul Smith
Ltd v H & S International Holding Inc [1991] 2 Lloyds Rep 127.
8 Petromec Inc v Petroleo Brasiliero SA [2005] EWCA 891; [2006] 1 Lloyds Rep 121, where the
Court of Appeal indicated that an agreement to negotiate could be given legal effect if it was
workable.
9 Cable & Wireless plc v IBM United Kingdom Ltd [2002] EWHC 2059 (Comm); [2002] 2 All
ER (Comm) 1041.
10 Channel Tunnel Group v Balfour Beatty Construction Ltd [1993] 1 AC 334, JT Mackley & Co
Ltd v Gosport Marina Ltd [2002] EWHC 1315; [2002] BLR 367.
11 [2007] EWHC 2495 (TCC); [2008] 1 All ER (Comm) 653, para 81.
12 [2002] EWHC 2059 (Comm); [2002] 2 All ER (Comm) 1041.
13 Arbitrators are less likely to be influenced by court rules encouraging the use of mediation but
considerations as whether mediation would resolve a dispute effectively would be relevant to their
duty under section 33 of the 1996 Act to adopt procedures to ensure the fair and efficient
resolution of a dispute.
14 Section 73 of the 1996 Act.
15 JT Mackley & Co Ltd v Gosport Marina Ltd [2002] EWHC 1315; [2002] BLR 367, para
31, Fiona Trust & Holding Corporation v Privalov [2007] EWCA Civ 20; [2007] 2 Lloyds Rep
267 at 275.
16 JT Mackley & Co Ltd v Gosport Marina Ltd [2002] EWHC 1315; [2002] BLR
367, Holloway v Chancery Mead Ltd [2007] EWHC 2495 (TCC); [2008] 1 All ER (Comm), see
also Chapter 7 on jurisdictional issues arising in the context of applications for a stay of
proceedings.
17 [2007] EWHC 2495 (TCC); [2008] 1 All ER (Comm) 653.
18 [2000] 2 Lloyds Rep 1.
19 E.g., LMAA/Baltic Exchange Mediation Terms 2009, Article 15.
20 Unilever plc v The Proctor & Gamble Co [2000] 1 WLR 2436.

21 Aird v Prime Meridian Ltd [2006] EWCA Civ 1866; [2007] BLR 105, Brown v Rice [2007]
EWHC 625 (Ch); [2008] FSR 3.
22 Brown v Rice [2007] EWHC 625 (Ch); [2008] FSR 3.
23 Ibid., the exceptions are discussed in Unilever plc v Proctor & Gamble Co [2000] 1 WLR
2436.
24 [2008] EWHC 786 (QB); [2008] BLR 330.
25 Brown v Rice [2007] EWHC 625 (Ch); [2008] FSR 3.
26 Ibid.
27 Hagop Ardahalian v Unifert International SA, The Elissar [1984] 1 Lloyds Rep 206.
28 Cf Glencot Development & Design Ltd v Ben Barrett & Son (Contractors) Ltd [2001] EWHC
Technology 15; [2001] BLR 207.
29 Section 61(2) of the 1996 Act.
30 [2004] EWCA Civ 576; [2004] 1 WLR 3002.

Chapter 4

The Arbitration Agreement


The Arbitration Agreement

1. Introduction
2. Types of arbitration agreement
3. Form
4. Uncertainty
5. Incorporation
6. The parties
7. Scope and construction
8. Counterclaims
9. Scott v Avery clauses
10. Termination

1. INTRODUCTION
Arbitration is a method of dispute resolution which is justified by and dependent upon the
existence of an agreement between the parties. An agreement to arbitrate may take many different
forms. In maritime contracts such as charterparties, the agreement to refer disputes to arbitration is
usually contained in a written arbitration clause, often in a standard printed form contract. Usual
principles of contract law are relevant to the validity and effect of an arbitration agreement.
However, the effect of a London arbitration clause will also be affected by the Arbitration Act
1996 and also by the particular principles of the common law which have developed in relation to

arbitration agreements. This should not be regarded as an unacceptable derogation from the
parties choice: by specifying arbitration in London the parties must be regarded as having
impliedly accepted the supplementing provisions of English law, and in particular the 1996 Act.1
This chapter will consider those rules of English law (statutory and common law) which relate to
arbitration agreements. The question of whether the arbitration agreement is one which is
governed by English law or foreign law raises questions of the conflict of laws which are
considered in Chapter 5.

2. TYPES OF ARBITRATION AGREEMENT


Section 6(1) of the 1996 Act contains the following definition of an arbitration agreement:
In this Part an arbitration agreement means an agreement to submit to arbitration present or
future disputes (whether they are contractual or not).
As this definition suggests, arbitration agreements may take many different forms. They may be
written or oral, express or implied; they may incorporate vastly different levels of detail, and they
may be wide or narrow in their scope. Subject to general principles of law governing the validity
of contracts, English law will recognise and enforce any arbitration agreement but, as discussed
below, the remedial and supervisory regime of the 1996 Act applies only to written agreements.

Agreements to refer existing disputes


As section 6(1) of the 1996 Act makes expressly clear, an arbitration agreement may refer to
arbitration disputes which are already in existence between the parties. This type of agreement is
often referred to as a submission agreement or an ad hoc arbitration agreement (though the
term ad hoc is frequently also used to describe arbitrations which are not administered by an
arbitral institution). An agreement to refer existing disputes will usually incorporate a greater level
of detail (e.g., as to procedures to be adopted) than agreements relating to future disputes. In
principle, there is no difference between the effect of the two types of agreement. However, some
important consequences follow from the distinction. For example, section 12 of the 1996 Act
(extension of agreed time limits) applies only to an agreement to refer future disputes and
section 60 (which permits the parties to agree that each party should pay its costs in any event)
applies only in the case of submission agreements.

Express and implied arbitration agreements


In the maritime context, the vast majority of arbitrations are conducted pursuant to express
agreements, usually contained in a charterparty, sale contract or bill of lading. In the event of a
dispute arising it is far easier and quicker to progress matters if there is already an express
agreement to arbitrate. However, English law does recognise the possibility of an implied
arbitration agreement, usually arising from the conduct of one or both of the parties. An implied
arbitration agreement will most usually be held to exist where the parties proceed with an
arbitration, each taking positive steps to progress that arbitration without objection.2 As further
discussed below, this possibility is recognised by section 5(5) of the 1996 Act.
Issues relating to implied arbitration agreements may be of particular importance in disputes as to
jurisdictionfor instance in relation to the inclusion in arbitration proceedings of a particular

dispute which falls outside the agreement, or the introduction to arbitration proceedings of a third
party. If a party intends to object to the tribunals lack of jurisdiction, it is important to object at
the earliest possible stage and to ensure that no positive steps are taken to progress the hearing of
those particular disputes. For example, any pleadings or correspondence should be expressed to be
without prejudice to the contention that the tribunal has no jurisdiction to determine dispute x,
or the dispute involving party y. In the absence of such precautions, there is a risk that the
tribunal or the court will find an implied agreement to arbitrate those disputes (or, possibly, find a
waiver of the right to object to the lack of jurisdiction). In any event, it would be likely in such
circumstances that the right to object had been lost: see section 73 of the 1996 Act.
In The Almare Prima,3 a dispute arose concerning a shortage of cargo under bills of lading. The
bills purported to incorporate the terms of a charterparty. The claimants commenced arbitration
and over the next four years correspondence and pleadings were exchanged. Security for the claim
was given in consideration of the claimants refraining from proceeding other than by way of
London arbitration and was expressed to be for such sums as may be adjudged by the London
Arbitration Tribunal. At the arbitration, the respondents contended that the arbitrators had no
jurisdiction because the claimants were not party to the bill of lading contracts. It was agreed that
the arbitrators could decide the question of jurisdiction. They held that although the claimants
were not party to the bills of lading, the parties had by their conduct conferred jurisdiction. This
award was upheld by Phillips J.4
Similarly, in LG Caltex Gas Co Ltd v National Petroleum Corporation,5 the Court of Appeal
confirmed the possibility of parties concluding an ad hoc agreement that the tribunal should deal
finally with jurisdictional issues, thereby precluding any right of challenge to the court. In Caltex,
arbitral proceedings were commenced under two related contracts and consolidated by agreement.
In each reference, the respondents challenged the tribunals jurisdiction, denying that they were
party to any contract with the claimant. Following correspondence between the parties as to the
appropriate procedure to be adopted, the arbitrator declined to determine the jurisdictional issue as
a preliminary issue. Instead, the parties proceeded to a hearing intended to deal both with
jurisdiction and (without prejudice to the respondents denial of jurisdiction) the merits. The
arbitrator issued an award declaring that the respondents were not party to the contracts. The
claimant issued proceedings in the Commercial Court pursuant to section 67 of the 1996 Act,
challenging the arbitrators decision. At first instance, the judge held that the correspondence
between the parties constituted an ad hoc agreement whereby the parties had conferred
jurisdiction on the arbitrator finally to decide his jurisdiction, and that no challenge was therefore
possible. On appeal, the Court of Appeal held that it remained possible under the 1996 Act for the
parties to confer on the tribunal jurisdiction to make a final and binding award on jurisdiction. In
such a case, any challenge to the arbitrators decision under section 67 would fail. However, in the
present case the correspondence was all consistent with the arbitrators merely exercising his
power under section 30 of the 1996 Act and, therefore, no separate ad hoc agreement was
brought into existence.
In Gulf Import & Export Co v Bunge SA,6 the court clarified that an ad hoc agreement will be
implied only where the conduct relied upon is consistent only with an ad hoc submission. Conduct
which is consistent with maintaining a right to object to the tribunals jurisdiction will not suffice.

The applicability of arbitration rules may also be implied. Paragraph 5 of the LMAA Terms
expressly recognises and sanctions the creation of an implied agreement that the LMAA Terms
should apply. It provides:
5. These Terms shall apply to an arbitration agreement whenever the parties have agreed that
they shall apply and the parties shall in particular be taken to have so agreed:

(a) whenever the dispute is referred to a sole arbitrator who is a full Member of the
Association and whenever both the original arbitrators appointed by the parties are full
Members of the Association, unless both parties have agreed or shall agree otherwise;
(b) whenever a sole arbitrator or both the original arbitrators have been appointed on the basis
that these Terms apply to their appointment. Whenever a sole arbitrator or both the original
arbitrators have been appointed on the basis referred to at (b), such appointments or the
conduct of the parties in taking part in the arbitration thereafter shall constitute an agreement
between the parties that the arbitration agreement governing their dispute has been made or
varied so as to incorporate these Terms and shall further constitute authority to their
respective arbitrators so to confirm in writing on their behalf.

Conditional or hybrid arbitration agreements


English law recognises and will enforce an agreement whereby arbitration is made conditional on
the prior completion of some other form of procedure.
Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd 7 involved a dispute under a
building contract which provided for the initial reference of disputes to a panel of experts, and
which provided for final settlement by arbitration. The House of Lords stated that, even if the
agreement was not technically an arbitration agreement within the meaning of the 1975
Arbitration Act, the court had an inherent jurisdiction to stay proceedings brought in breach of it.
Lord Mustill indicated that in any event the agreement did constitute an arbitration agreement
within the meaning of English arbitration legislation.8
Where, therefore, an arbitration clause imposes clear obligations on the parties to take steps to
attempt to settle a dispute, they must do so before commencing any arbitral
reference.9 Furthermore, the court (rather than the arbitral tribunal) will usually be the most
convenient forum for determining whether such pre-arbitration steps have been taken.
In Holloway v Chancery Mead Ltd,10 the parties disagreed as to the meaning of a a construction
contract arbitration clause which required claims to be referred to a dispute resolution service
before any arbitration was commenced. Ramsey J rejected an argument that this issue was to be
determined by the tribunal: it would be unfair if the parties could not raise such an issue in court,
and the rule (deriving from Vale Do Rio Doce Navegacao SA & Anor v Shanghai Bao Steel Ocean
Shipping Co Ltd 11) that a pre-emptive declaration is not available from the court did not apply
in a pre-appointment case.
Similarly, the court will enforce a hybrid agreement under which some disputes are referred to
arbitration and others to a different form of dispute resolution. It is particularly important to
ensure that this type of dual mechanism clause is clearly drafted. Where necessary, the courts

will modify the arbitration provisions to give effect to the intentions of the parties and to ensure
that the clause works sensibly.12

Unilateral arbitration clauses


An option to arbitrate (exercisable by one party at his discretion) constitutes an arbitration
agreement which the courts will recognise and enforce. A good example of such a unilateral
option is provided by the Shelltime arbitration clause, which provides for disputes to be
determined by the High Court, but with an option on the part of either party to elect to arbitrate,
provided that the contractual procedures for such election are followed.
In Pittalis v Sherefettin 13 a lease contained provision for the determination of rental value either
by agreement between the lessor and lessee following written notification from the lessor or, at
the election of the lessee by notice in writing to the lessor not later than three months after [the
lessors notification in writing as set out above] by an independent surveyor appointed for that
purpose by the Lessor and Lessee by agreement in writing or failing such agreement as to such
appointment then by an independent surveyor appointed for that purpose by the President for
the time being of the Royal Institute of Chartered Surveyors. The Court of Appeal held that the
clause did constitute an arbitration agreement (for the purposes of the arbitration legislation that
was then applicable14).
It appears that for the purpose of the 1996 Act, an agreement to arbitrate on the election of either
party will be characterised as an agreement to refer future (not present) disputes.

3. FORM

Agreements to be in writing
Arbitration agreements have the important effect of depriving the parties of their basic right to
seek redress through the courts. It is important that these agreements be properly recorded, not
least because such a record should help to avoid disputes as to whether or not an arbitration
agreement was made.15 A requirement that an arbitration agreement be recorded in writing is also
consistent with the Model Law and the New York Convention on Enforcement of Awards.
For these reasons, the 1996 Act provides that all agreements relating to arbitration should be made
or evidenced in writing. Section 5(1) of the Act provides that:
The provisions of this Part apply only where the arbitration agreement is in writing.
Section 5(1) goes on to make clear that the writing requirement extends beyond the arbitration
agreement itself. Any agreement to vary an arbitration agreement, or to exclude the provisions of
the Act, will be effective for the purposes of Part I of the Act only if it is made in writing. It is
extremely important to ensure that any agreement relating to procedure, the powers of the tribunal,
or the scope of the reference, is made in writing if it is to be recognised and given effect under the
1996 Act.
However, the meaning of agreement in writing is relatively broad. Furthermore, the provisions
of section 5 do not mean that oral agreements are entirely invalid. Such agreements continue to
take effect at common law, as is clear from section 81, which provides that:

(1) Nothing in this Part shall be construed as excluding the operation of any rule of law
consistent with the provisions of this Part, in particular, any rule of law as to
(b) the effect of an oral arbitration agreement
Oral agreements would, therefore, continue to have effect at common law, but would not attract
the beneficial and supportive regime of the 1996 Act. In practice, it is preferable to ensure that all
agreements are made and recorded in writing.

The meaning of agreement in writing


Although the 1996 Act effectively requires all agreements relating to the arbitration to be written,
section 5 of the Act incorporates an extremely wide concept of agreement in writing. An
agreement in writing will be found in any of the following situations:
(a) if the agreement is made in writing (whether or not it is signed by the parties). This category
encompasses all ordinary written contracts, whether or not they are signed.
(b) if the agreement is made by exchange of communications in writing. Under section 5(6),
references to anything being in writing include it being recorded by any means. Accordingly,
this category would include faxes, telexes and also e-mails16 in which an agreement to arbitrate
was recorded. This is consistent with pre-1996 Act law.
In Zambia Steel & Building Supplies Ltd v James Clark & Eaton Ltd 17 the defendants final
quotation to the plaintiff contained certain written terms including an arbitration agreement, but
provided that orders would only be accepted on those terms, the quotation was itself not an offer
and was subject to final confirmation of the plaintiffs acceptance. No written confirmation was
made. It was held that the clause was a written arbitration agreement within the meaning of the
then applicable arbitration legislation, it being unnecessary to show written assent to a term in
writing. Oral assent would suffice. The DAC expressly referred, with apparent approval, to
the Zambia Steel case in their report.18
Similarly, in The Sargasso 19 the parties entered an ad hoc agreement to arbitrate after disputes
had arisen between them. The defendants sent a telex stating we confirm that in our
conversation we did agree that all disputes should be arbitrated with a tribunal consisting of
Messrs Ferryman and Hamsher, but that they could not agree dates of appointment until certain
documentation had been provided. The plaintiffs replied the next day by telex, stating that they
awaited resolution of the outstanding matters in order that the Arbitrational Tribunals may be
completed. It was held that this exchange of telexes constituted a written agreement for the
purposes of the arbitration legislation that then applied.
In Abdullah M Fahem v Mareb Yemen Insurance Co,20 the second defendant sent the claimant a
telex, expressed to be an offer and setting out terms for the sale of 30,000 mt sugar, including an
arbitration clause referring disputes to the Refined Sugar Association. Two days later, the second
defendant sent the claimant a further telex, confirming the sale of the sugar, and stating all other
terms and conditions as per our offer telex. Cresswell J decided that he was bound by the
decision in the Zambia Steel case and, applying that decision, held that the contract was in writing
(for the purpose, in that case, of the 1975 Arbitration Act).

(c) if the agreement is evidenced in writing. This category includes oral agreements which are
recorded by one of the parties or by a third party acting with the authority of the parties: section
5(4). This would include, for example, agreements made during arbitral proceedings and recorded
by the arbitrator
In addition, section 5(3) of the 1996 Act confirms that an oral agreement which incorporates by
reference terms which are in writing is an agreement in writing. The reference could be to a
written agreement containing an arbitration clause (e.g., the LMAA arbitration clause) or to a set
of written arbitration rules (e.g., the LMAA Terms). This category would cover an oral salvage
agreement incorporating the Lloyds Open Form.
In Heifer International Inc v Christiansen 21 the claimants representative showed the fifth
defendant a copy of a contract which the claimant had concluded with the fourth defendant, and
which incorporated an arbitration clause. The claimant informed the fifth defendant that the same
conditions would apply to its own contract and the contract was then concluded. The court held
that this amounted to a contract between the parties which was made otherwise than in writing, but
by reference to terms which are in writing, within the meaning of section 5(3).
In Oceanografica SA de CV v DSND Subsea AS,22 a charterparty which had been signed by one
party only, contained a provision which prevented a binding contract from arising until both
parties had signed. Despite this, it was held that a binding agreement existed, because the nonsigning party had, by its conduct, waived its right to insist on a signature; furthermore, the parties
had acted on the assumption that the terms of the charterparty applied. However, each case will
turn on its facts, and in other cases, the court may find that the parties were proceeding on the
basis that they would not be bound until a charterparty was formally signed.23
Finally, section 5(5) of the 1996 Act makes clear that an agreement constituted by the exchange of
written submissions in arbitral or legal proceedings in which the existence of the agreement is
asserted by one party and not denied by the other is also an agreement in writing. This concept,
which derives from article 7 of the Model Law, represents a notable widening of the category of
agreements in writing. The requirement of an exchange of submissions will, however, prevent a
written agreement arising by virtue of a mere failure to respond to the other partys submissions.

4. UNCERTAINTY
Arbitration clauses contained in charterparties and bills of lading are often extremely
abbreviatedthey may often consist solely of the words Arbitration London. Nevertheless, the
courts have been unwilling to find that such clauses are too uncertain to be enforced, and will
usually expand the clause in accordance with the parties presumed intentions.
In Hobbs Padgett & Co (Reinsurance) Limited v J.C. Kirkland Ltd,24 the contract between the
parties contained the provision suitable arbitration clause. This was construed by the Court of
Appeal as meaning that disputes would be referred to any arbitration which reasonable men in
this type of business would consider suitable.
Similarly, in Tritonia Shipping Inc v South Nelson Forest Products Corporation 25 a clause which
provided arbitration to be settled in London was held to mean any dispute under this
charterparty to be settled by arbitration in London. (In Hobbs Padgett (supra), Salmon LJ,

commenting on the Tritonia case, went so far as to say that had the clause read simply
arbitration, it would have been valid.26)
In The Star Texas 27 a charterparty contained an arbitration clause which provided that Any
dispute arising under the charter is to be referred to arbitration in Beijing or London in defendants
option. Owners commenced proceedings in the High Court in respect of unpaid hire and
expenses. The charterers applied for a stay under section 1 of the 1975 Act. In the stay
proceedings, the owners contention that the clause was void for uncertainty was rejected by the
Court of Appeal. The owners had argued that the word defendant in the clause had at least eight
different possible meanings. The Court of Appeal stated that it was the obligation of the court to
select the meaning which best matched the intentions of the parties. In this case, defendant was
intended to mean the party against whom arbitral or court proceedings were commenced. The fact
that the defendant could exercise the option under the clause only after the commencement of
arbitral proceedings in one jurisdiction did not render the clause void for uncertainty.
In Mangistaumunaigaz Oil Production v United World Trading Inc,28 a clause providing
Arbitration, if any, by ICC rules in London was held to constitute an ordinary arbitration
agreement requiring immediate arbitration of disputes.
However, where the clause is so ambiguous and uncertain that no sense can be made of it, the
court must reject it. For example in EJR Lovelock Ltd v Exportles,29 the Court of Appeal rejected
as meaningless a single clause which provided for disputes to be referred to both London and
Moscow arbitration.
Where a written arbitration agreement does not provide how many arbitrators there are to be, then
by virtue of section 15(3) of the 1996 Act, the reference is to a sole arbitrator. However, it is
important to note that even a vague reference to a mode of arbitration will be sufficient to oust
the operation of section 15(3).
In The Laertis,30 the arbitration clause provided for arbitration to be settled in London according
to British law in its customary manner. It was held that this constituted a provision for the mode
of reference and that the relevant statutory provision (then section 6 of the Arbitration Act 1950)
did not, therefore, apply. Evidence was heard from several London maritime arbitrators before the
court determined that the appointment of two arbitrators and, if necessary, an umpire, was the
usual manner of conducting shipping arbitrations.
Although the principle of The Laertis holds good, the case would probably be decided differently
today because it is now much more common (and possibly even customary) for disputes to be
referred to three arbitrators, rather than to two arbitrators with an umpire.

5. INCORPORATION
The question of whether an arbitration clause has been incorporated into the relevant contract
(such as a charterparty or bill of lading) is a matter of construction of that contract.31 An
arbitration agreement is often one of many clauses in a single written contractual document
typically an amended standard form contract. In such a case, the parties intention to arbitrate is
clear. Alternatively, the parties may incorporate by reference the terms of another entire

agreement (e.g., a head charter or contract of carriage). It is in relation to this latter form of
agreement (incorporation by reference) that difficult disputes commonly arise.
An arbitration clause will not usually be characterised as particularly onerous or unreasonable, so
as to require special notice to be drawn to it.32 However, difficult issues may arise particularly
acutely in situations involving two linked contracts, which are common in the shipping,
reinsurance and construction contexts. Where the parties seek to incorporate the terms of a third
partys contract (e.g., where charterparty terms are sought to be incorporated in a bill of lading),
there may be difficulties in establishing that the parties to the negotiable bill of lading were fully
aware of the charterparty terms; or that the charterparty terms are, as a matter of construction,
applicable to issues arising under the bill of lading.

The 1996 Act


Section 6(2) of the 1996 Act provides:
The reference in an agreement to a written form of arbitration clause or to a document containing
an arbitration clause constitutes an arbitration agreement if the reference is such as to make that
clause part of the agreement.
While recognising in general terms the possibility of incorporation of an arbitration clause by
reference, section 6(2) deliberately leaves open the question of whether or not an arbitration clause
contained in a longer document such as a standard form of contract can effectively be incorporated
by reference solely to that document, or whether it is necessary to refer expressly to the arbitration
clause itself. Prior to the 1996 Act, this question had been the subject of some debate. The
conflicting approaches of two members of the Court of Appeal in a construction
case, Aughton v MF Kent Services,33 had crystallised the arguments each way. In that case, Sir
John Megaw had expressed the view that it would generally be necessary to make express
reference to the arbitration clause in order to effectively incorporate it. Ralph Gibson LJ was of
the view that, in principle, reference to the standard form or other document which contained the
clause should suffice. As the DAC explained:34
In English law there is at present some conflicting authority on the question as to what is required
for the effective incorporation of an arbitration clause by reference. Some made critical
comments of the views of Sir John Megaw inAughton v MF Kent Services (a construction contract
case) and suggested that we should take the opportunity of making clear that the law was as stated
in the charter party cases and as summarised by Ralph Gibson LJ in Aughton . It seemed to us,
however, that although we are of the view that the approach of Ralph Gibson LJ should prevail in
all cases, this was really a matter for the court to decide.

Bills of lading cases: common law background


Traditionally, a different approach has prevailed in the maritime context. The issues surrounding
incorporation by reference have most often arisen in the shipping context in connection with the
incorporation into a bill of lading of a charterparty arbitration clause. In general, the question of
whether a charterparty clause is sufficiently clearly incorporated into a bill of lading is regarded as
a question of construction of that bill of lading.35 However, a bill of lading is a negotiable

instrument which may pass through many hands and to subject the holder to the terms of an
arbitration clause of which he is unaware is perceived as unfair.36 In this context the courts
developed the requirement that specific reference must be made to the arbitration clause in the bill
of lading if it is to be incorporated. These cases form a clear and developed line of authority,
which is well known and recognised in the shipping trade.37 A reference to all terms conditions
and exceptions of the charterparty would not in itself, therefore, be enough to incorporate an
arbitration clause. Such general terms are sufficient only to incorporate terms relevant to the
receipt, carriage or delivery of the goods. A specific reference to the arbitration clause is required
to incorporate an agreement to arbitrate.
However, the courts have recognised a possible exception to this generally accepted rule where
the arbitration clause in the charterparty is wide enough on its true construction and without any
verbal manipulation to include disputes under the bill of lading and between the parties to it. In
such cases the courts have on occasion found that general words of incorporation are sufficient to
incorporate an arbitration clause. There is Court of Appeal dicta in The Annefield which supports
the existence of such an exception where a charterparty specifically refers to disputes under the
bill of lading, for instance by providing for arbitration of all disputes arising under the charterparty
and any bill of lading issued under it.38 However, more recently, the Court of Appeal in The
Federal Bulker 39 doubted whether the fact that a charterparty arbitration clause was framed in
such terms would be sufficient to incorporate that arbitration clause into a bill of lading which
made no specific reference to it. In Excess Insurance Co v Mander,40 Colman J took the view that
the Annefield exception could arise only where the contracting parties had access, at the time of
contracting, to both the charterparty and the bill of lading.
In The Federal Bulker, the charterparty provided that bills of lading, to include the charterparty
arbitration clause, should supersede the charter itself. The arbitration clause provided that all
disputes arising out of this contract shall be referred to the final arbitrament of two
Arbitrators carrying on business in London. Cargo owners sought to claim against owners under
bills of lading which had been issued in accordance with the charterparty but with no specific
reference to the arbitration clause. They commenced arbitration proceedings and owners sought a
declaration that there was no arbitration agreement between themselves and cargo owners.
Granting the order, the Court of Appeal held that the general language used in the bills of lading
was not sufficient, and had never in the past been held to be sufficient, to incorporate the
arbitration clause into the bill of lading.
In The Nerano,41 the bill of lading contained a clause providing conditions as per relevant
Charterparty are incorporated in this bill of lading and have precedence if there is a conflict,
English law and jurisdiction applies. The conditions on the back of the bill of lading provided
All terms and conditions liberties exceptions and arbitration clause of the Charterparty are
herewith incorporated. The relevant charterparty included a clause requiring disputes between
the Owners and Charterers to be referred to arbitration. The defendants applied for a stay of court
proceedings brought in breach of the arbitration clause. Clarke J held that the charterparty
arbitration clause, because it referred to Charterers, could not refer to disputes under the bill of
lading without verbal manipulation. The exception recognised in the Annefield therefore did not
apply. However, since the bill of lading conditions expressly referred to the charterparty

arbitration clause, and since the reference on the front of the bill of lading to English jurisdiction
was not inconsistent with this, the defendants were entitled to a stay of proceedings.

Cases following the 1996 Act


As the passage from paragraph of the DAC report set out above makes clear, the DAC took the
view that in all cases, general words of incorporation should suffice to incorporate an arbitration
agreement. This raises the question of whether the bill of lading cases will remain good law under
the 1996 Act. The better view is that, while general words of incorporation are regarded as
sufficient in most single contract cases, bills of lading cases now form a specific exception to that
general rule.42 The status of the Annefield exception remains unclear, though the courts appear
reluctant to endorse it.
The authorities were reviewed by Gross J in Siboti K/S v BP France SA. 43 The following four
propositions were characterised as well-established, and there was no serious dispute about them:

(i) The starting point is the contract contained in or evidenced by the bill of lading; it is that
contract which the court must construe.
(ii) The incorporation of terms is to be distinguished from mere notice of terms; the fact that
the holder of a bill of lading has notice of terms in a charterparty does not mean that those
terms are incorporated in the bill of lading.
(iii) General words of incorporation will incorporate into the bill of lading only those
provisions of the charterparty which are directly germane to the shipment, carriage and
delivery of the goods. Provisions of the charterparty which are ancillary rather than directly
germane to the subject-matter of the bill of lading as aforesaid, will not be incorporated by
general words of incorporation in the bill of lading. By way of amplification:
o (a) General words of incorporation are to be distinguished from wording making a
specific reference to a particular charterparty provision (for example, a charterparty
arbitration clause). Accordingly, even comparatively wide wording such as all terms,
conditions and exceptions as per charterparty constitute general words of
incorporation for these purposes.
o (b) Arbitration clauses are ancillary in this sense.
(iv) Even when the wording of a bill of lading is prima facie of sufficient width to incorporate
the charterparty clause in question, such incorporation may be defeated if undue manipulation
is required. That said, in this regard the intention of the parties is paramount. Accordingly,
while the purported incorporation of certain charterparty clauses may prove ineffective on the
ground of linguistic inapplicability alone (e.g., charterparty arbitration clause wordings such
as any disputes arising out of this charter), where the intention to incorporate a particular
charterparty clause is clear, difficulties of manipulation may be overcome. It may well be that
the true intentions of the parties serve to define the ambit of permissible manipulation.

On the question of whether the inquiry may go outside the terms of the bill of lading, Gross J was
reluctant to endorse the Annefield principle. He indicated that there was Court of Appeal authority
(The Varenna and The Federal Bulker) that unless the wording in the bill of lading is of a
sufficient width so as prima facie to incorporate the provision of the charterparty under
consideration, it is irrelevant and unnecessary to construe the charterparty. He recognised that

these authorities were difficult to reconcile with The Annefield, but took the view that it was his
duty to follow them.
He further held that there was powerful authority (The Varenna, The Merak and The Federal
Bulker) that clauses in the charterparty as to the form or content of bills of lading to be issued
thereunder are irrelevant to the contract constituted by the bills of lading themselves.
The question of whether an arbitration clause is incorporated therefore remains the subject of
some uncertainty, and will depend upon all the facts and circumstances. However, some forms of
bill (for example, Congenbills) are recognised as giving rise to a valid incorporation:
In The Delos,44 claims arose under bills of lading issued on behalf of the defendants. The bills
were on two forms. Congenbills were issued in respect of cargoes of soya oil; these stated All
terms and conditions, liberties and exceptions of the Charter Party including the Law and
Arbitration clause are herewith incorporated. Ocean bills were issued in respect of the other
cargoes: these stated merely This shipment is carried under and pursuant to the terms of the
Charter Party and all the terms whatsoever of the said charter apply to and govern the rights
of the parties. The charterparty included provision for arbitration in London. The claimants, who
asserted claims as lawful holders of the bills, commenced court proceedings in London. The
defendant shipowners applied under section 9 of the 1996 Act to stay the proceedings. Langley J
stayed the claims arising under the Congenbills, but held that the wording of the ocean bills was
insufficient to incorporate the charterparty arbitration clause.
Welex AG v Rosa Maritime Ltd 45 was also concerned with Congenbills. It was argued that the
word charterparty was intended to refer to a single, formally executed charterparty document,
and could not refer to a fixture constituted by an exchange of telexes. This argument was rejected
by the Court of Appeal, who held that parties to Congenbills would expect charterparty terms to
be incorporated. There was no reason to give a narrow meaning to the term charterparty.

6. THE PARTIES
Arbitration agreements contained in commercial contracts raise particular problems relating to the
question of the parties entitled to invoke the agreement. Such problems may relate to the capacity
of the contracting parties, or to the subsequent assignment by one of the parties of the benefit of
the contract containing the arbitration clause. The problems raised are essentially matters of
substantive law beyond the scope of this book. Assignment and agency are discussed in Chapter
15 below on arbitration and third parties.

Capacity
In relation to general corporate capacity, an English company will be bound by any arbitration
agreement it enters, whether beyond the capacity of the company or of the board of directors or
not, if the other party to the agreement dealt with the company in good faith.46 In the case of
individual contracting parties, issues as to capacity arise only rarely. One example is afforded
by Irvani v Irvani.
In Irvani v Irvani,47 two brothers (Bahman and Ali Irvani) were in partnership in a wide range of
business affairs, but disputes arose and their partnership terminated. Many of the difficulties were

caused by Alis drug addiction. The brothers elder sister was appointed as an arbitrator pursuant
to an ad hoc agreement and she produced an award determining the disputes which had arisen.
The award was broadly unfavourable to the claims brought by Ali. Ali commenced proceedings in
the courts of Georgia seeking dissolution of the partnership and distribution of its assets. He
argued that the arbitration agreement was ineffective because he had not, at the time, been
competent to contract by reason of his drug addiction. Bahman sought declarations from the
English court that the arbitration agreement, and the award, were valid and binding. The Court of
Appeal held that there was nothing unconscionable or oppressive about the arbitration agreement,
that Ali (an experienced businessman) had been capable of concluding it, and that it was
accordingly binding on him.

Administration or liquidation of corporate party to an


arbitration agreement
If an English company is put into administration, arbitration proceedings cannot be commenced
against it unless the administrator or the court consents. However, the administrator may himself
commence arbitration on behalf of the company.48 On liquidation, the liquidator may disclaim
unprofitable contracts (including the arbitration agreements contained in them) or may commence
or defend arbitration proceedings. The effect of foreign insolvency proceedings may depend upon
the effect of EC Council Regulation 1346/2000 on Insolvency Proceedings.49 Reference should be
made to specialist texts dealing with corporate insolvency.

7. SCOPE AND CONSTRUCTION


An arbitrator has the power to bind the parties to an arbitration because the parties agreed that he
should have such power. If the parties did not agree to refer an issue to arbitration then any award
on that issue will be invalid since it was made without jurisdiction. Arguments often arise as to
whether the agreement to arbitrate covers a particular issue, since enormous tactical advantages
may be obtained by forcing a party either to arbitrate or litigate that issue. The question of whether
the arbitrator or the court should decide whether a particular dispute falls within an arbitration
clause is considered in Chapter 6. This section will deal with the substantive issues of scope and
construction which may arise in such proceedings.
English law adopts a benevolent approach to construction and the court is usually unwilling to
construe the arbitration clause narrowly so as to exclude disputes from its scope, particularly
where this would result in a situation which is uncommercial or inconvenient.50 Where the
arbitration clause is abbreviated in its form, it will be construed widely and any challenges to the
scope of the clause will fail except in the most extreme circumstances. Thus the commonly
adopted provision for arbitration London or London arbitration will encompass the great
majority of disputes connected with the contract.
Many clauses make express reference to the claims, disputes or differences which are to be
referred. Such formulations are usually further refined by a requirement that the claim etc must
arise out of, under, in connection with or relate to the main contract. The possible
formulations are endless and the meaning of each depends on the intentions of the parties to the
particular contract. Historically, such formulations gave rise to a good deal of case law, in which

fine distinctions were drawn (e.g., between disputes or claims) and in which it was recognised
that some formulations (e.g., arising out of) were wider than others (e.g., arising under).
Such authorities were in any event only of persuasive value, since every contract is different and
issuees of construction always depend on the particular context. Since the House of Lords
decision in the well known Fiona Trustcase,51 authorities on the meaning of particular phrases
must be viewed as being of little assistance.
In Fiona Trust, the Lords considered a charterparty law and litigation clause which provided for
disputes to be referred to the English court, but which also conferred an option to arbitrate. The
provision was internally inconsistent, referring both to disputes arising under and out of the
charterparty. The issue before the Lords was whether an allegation that the charters had been
procured by bribery was one which fell within the scope of the arbitration clause (and was
therefore an issue to be determined by the tribunal). Considering the many authorities on
construction of arbitration clauses, the Lords endorsed the Court of Appeals view that the time
had come to draw a line and make a fresh start. The starting point in every case was the strong
presumption that the parties intended all their disputes to be determined in a single forum. With
that in mind, arbitration clauses should be interpreted broadly and with reference to the parties
intentions, rather than by focusing on particular phrases. If a businessman wishes to exclude
particular disputes from the scope of the arbitration clause, it is relatively easy to say so. Here,
there was nothing to suggest that the parties intended to exclude disputes about bribery from the
scope of the tribunals jurisdiction.
Post-Fiona Trust, therefore, authorities about the detailed meaning of particular phrases are of
limited relevance. Instead, a court faced with issues of construction will adopt a broad approach,
seeking to give a wide interpretation to any arbitration agreement and to give effect to the
intentions of the parties.
For example, in Film Finance Inc v The Royal Bank of Scotland,52 Andrew Smith J considered a
dual mechanism clause which referred some disputes to arbitration and others to the English
court. He was willing to modify the arbitration provisions in order to give effect to the parties
intentions and to make the clause work sensibly

8. COUNTERCLAIMS
Often both parties to a maritime contract wish to assert claims against each other. The respondent
to arbitration proceedings may do so by way of counterclaim where his own claim falls within the
scope of the arbitration agreement. Although it may be argued that it is technically necessary for
two separate arbitrations to be commenced, this is obviously inconvenient and unheard of in
practice. By agreeing to the arbitrator hearing the respondents claim by way of counterclaim,
both parties submit that claim to the arbitrators jurisdiction.53
Problems arise where the respondent wishes to assert a counterclaim (sometimes pleaded as a setoff) that does not arise under the same contract or does not clearly come within the scope of the
the arbitration agreement. In these circumstances, whether the arbitrator has jurisdiction over the
counterclaim will depend on the scope of the arbitration clause.54 If the counterclaim arises out of
the same transaction or one closely connected to the main contract containing the arbitration
clause then unless the arbitration clause excludes such a defence, it is likely that the arbitral

tribunal would have have jurisdiction to consider the claim.55 Such a situation is sometimes called
transaction set-off, but reference should be made to specialist texts for discussion of the different
types of set-off.56 The courts have commented that issues of some intricacy can arise,57 and the
issue will ultimately turn upon the construction of the particular arbitration clause.58 It will usually
be more convenient for the parties to agree that the arbitrator should determine both claim and
counterclaim since this avoids the risk of duplicated proceedings and inconsistent findings.

9. SCOTT v AVERY CLAUSES


Arbitration clauses sometimes take the form of an agreement that arbitration shall be a condition
precedent of the right to enforce rights under a contract in the courts, or that the parties only
obligation in the event of a dispute is to pay such sums as awarded by an arbitrator. Such clauses
are called Scott v Avery clauses because in the case of Scott v Avery 59 the House of Lords decided
that such agreements were legal and enforceable,60 and not contrary to public policy as ousting the
courts jurisdiction.
A Scott v Avery clause has two practical consequences. First, like other arbitration clauses, it
entitles the parties to seek a stay of legal proceedings brought in breach of the clause. Second,
unlike other arbitration clauses, a Scott vAvery clause has the effect that until the dispute between
the parties has been referred to arbitration, there is no cause of action over which the courts have
jurisdiction. Moreover, the amount in respect of which any claimant can bring judicial
proceedings is limited to the amount awarded by the arbitrator, the clause being treated as an
agreement to pay such amount. A Scott v Avery clause is thus not merely a procedural provision. It
affects the substantive rights of the parties,61 conferring on the defendant a complete defence to
any court proceedings the subject matter of which falls within the clause. Because of the farreaching effects of a Scott v Avery clause, the courts are unwilling to imply one into a
contract,62 and have adopted a restrictive approach to the question of whether such clauses affect
the right of the parties to approach the court for ancillary relief such as security.63
A claim form issued in breach of a Scott v Avery clause is not a nullity, but the clause provides a
complete defence to such an action on the basis that the plaintiff has no cause of action until it has
arbitrated. However, although a defendant to such proceedings is certainly entitled to await trial
and assert a defence based on the Scott v Avery clause, the more efficient course of action is to
seek an immediate stay of the judicial proceedings.

Loss of right to rely on Scott v Avery clauses


Despite the fact that a Scott v Avery clause confers substantive rights, those rights can be lost.
First, section 9(5) of the 1996 Act provides that where the court has refused to stay legal
proceedings brought in breach of a Scott v Averyclause, then that clause ceases to have effect. This
avoids a situation where the arbitration clause is unworkable, yet no legal proceedings can
successfully be brought.64 Second, the Scott v Avery provision may be waived by the conduct of
the defendant (usually by participating in court proceedings without objection). Similarly, a
defendant may not rely upon the clause as a defence where he has by his own conduct hindered
the progress of arbitration proceedings.65

10. TERMINATION

Since the arbitration clause is regarded as an agreement separate from the main contract to which
it relates, termination of the main contract does not entail automatic termination of the arbitration
agreement. The parties can agree to terminate the arbitration agreement: if this is the intention of
the parties, it should usually be stated expressly, though section 23(4) of the 1996 Act makes clear
that it is possible to reach such agreement without writingin particular, if one party simply
abandons the arbitration.66 However, it should be noted that the courts have been reluctant to find
that an arbitration agreement has been terminated (or abandoned) by implied agreement or by
conduct.67
1 The 1996 Act applies where the seat of an arbitration is England, Wales or Northern Ireland. In
most such cases, the arbitration agreement will also be governed by English law (C v D) [2007]
EWCA Civ 1282; [2008] 1 Lloyds Rep 360. However, an arbitration agreement specifying
arbitration in London may, if the parties agree, and subject to certain mandatory provisions (see
Chapter 5), be governed by a different law. Similarly, a choice of foreign curial law will (subject
to the application of the mandatory provisions of the 1996 Act) displace the application of English
procedural rules, including the Act: see the obiter view of the House of Lords in Channel Tunnel
Group Ltd v Balfour Beatty Construction Ltd [1993] 1 AC 334 at 357-358; see also paragraph 23
of the DAC Report.
2 Westminster Chemicals and Produce Ltd v Eichholz and Loeser [1954] 1 Lloyds Rep 99
(appointment of arbitrators by each side); A/B Legis v V Berg & Sons Ltd [1964] 1 Lloyds Rep
203 (submission to an umpire); Luanda Exportadora SARL etc v Wahbe Tamari & Sons Ltd and
Jaffa Trading Co [1967] 2 Lloyds Rep 353 (submission to an umpire); The Tuyuti [1984] 2
Lloyds Rep 51 at 58; see also Furness Withy v Metal Distributors (The Amazonia) [1990] 1
Lloyds Rep 236.
3 Almare Societa di Navigazione SpA v Derby and Co Ltd [1989] 2 Lloyds Rep 376.
4 Cf Hoesch Export AG v Hansa Projekt Transport GmbH (The World Umpire) [1990] 1 Lloyds
Rep 374, in which the court held that on the facts there were two implied agreements, between
owners and charterers and shippers and owners, but that the agreement between shippers and
owners incorporated no arbitration clause.
5 [2001] 2 All ER (Comm) 97; see also Republic of Kazakhstan v Istil Group Inc [2006] EWHC
448 (Comm); [2006] 2 Lloyds Rep 370
6 [2007] EWHC 2667 (Comm); [2008] 1 Lloyds Rep 316.
7 [1993] 1 AC 334.
8 At page 355.
9 See Chapter 3.
10 [2007] EWHC 2495 (TCC); [2008] 1 All ER (Comm) 653.
11 [2000] 2 Lloyds Rep 1.
12 Film Finance Inc v The Royal Bank of Scotland [2007] EWHC 195 (Comm); [2007] 1 Lloyds
Rep 382.

13 [1986] 1 QB 868.
14 The same result would apply under the 1996 Act.
15 Paragraph 35 of the DAC Report.
16 Paragraph 34 of the DAC Report.
17 [1986] 2 Lloyds Rep 225.
18 Paragraph 34 of the DAC Report.
19 Petredec Ltd v Tokumaru Kaiun Co Ltd [1994] 1 Lloyds Rep 162.
20 [1997] 2 Lloyds Rep 738.
21 [2007] EWHC 3015 (TCC); [2008] Bus LR D49.
22 [2006] EWHC 1360 (Comm); [2007] 1 Lloyds Rep 37.
23 See, e.g., Sun Life Assurance Company of Canada v CX Reinsurance Company Limited [2003]
EWCA Civ 283; [2004] Lloyds Rep IR 58.
24 [1969] 2 Lloyds Rep 547.
25 [1966] 1 Lloyds Rep 114.
26 At p. 549.
27 Star Shipping AS v China National Foreign Trade Transportation Corporation [1993] 2
Lloyds Rep 445.
28 [1995] 1 Lloyds Rep 617.
29 [1968] 1 Lloyds Rep 163.
30 Laertis Shipping Corporation v Exportadora Espanola de Cementos Portland [1982] 1 Lloyds
Rep 613.
31 Excess Insurance Co Ltd v Mander [1997] 2 Lloyds Rep 119, AIG Europe SA v QBE
International Insurance Ltd [2001] 2 Lloyds Rep 268, Axa Re v Ace Global Markets Ltd [2006]
EWHC 216 (Comm); [2006] Lloyds Rep IR 683.
32 Stretford v The Football Association Limited [2006] EWHC 479 (Ch); [2007] EWCA Civ 238;
[2007] 2 Lloyds Rep 31.
33 [1991] 57 BLR 1.
34 Paragraph 42 of the DAC Report.
35 It appears that a reference to charterparty terms is apt to incorporate the terms of written, but
not oral, chartering agreements. Moreover, a reference to a charterparty is more likely to refer to
a written instrument than to a contract evidenced by a recap telex: Partenreederei m/s Heidberg
and ors v Grosvenor Grain & Feed Co (The Heidberg) [1994] 2 Lloyds Rep 286.

36 The Annefield [1970] 2 Lloyds Rep 252; [1971] P 169, 184; see also The Nerano [1994] 2
Lloyds Rep 50 at 52 (first instance per Clarke J) and Excess Insurance Co v Mander [1997] 2
Lloyds Rep 119.
37 Thomas & Co Ltd v Portsea Steamship Co [1912] AC 1; The Merak [1964] 2 Lloyds Rep
527; Federal Bulk Carriers Inc v Itoh & Co Ltd, The Federal Bulker [1989] 1 Lloyds Rep 103.
38 Brandon J in The Rena K [1979] 1 QB 377 at 389-390, endorsed this view, stating that The
Merak [1964] 1 Lloyds Rep 527 was the authority for it. See also the first instance judgment
in The Varenna [1983] 1 Lloyds Rep 416 at 422 per Hobhouse J, and the Court of Appeal in The
Nerano [1996] 1 Lloyds Rep 1.
39 At 108 and 110, Dillon LJ emphasised that the question of incorporation turned upon the
construction of the bill of lading.
40 [1997] 2 Lloyds Rep 119. See also Michael S Evryalos Maritime Ltd v China Pacific
Insurance Co, The Michael S, per Colman J, 20 December 2001, LMLN [2002].
41 [1994] 2 Lloyds Rep 50; [1996] 1 Lloyds Rep 1.
42 See, e.g., Excess Insurance Co Ltd v Mander [1997] 2 Lloyds Rep 119, Secretary of State for
Foreign and Commonwealth Affairs v Percy Thomas Partnership 65 Con LR 11, Sea Trade
Maritime Corp v Hellenic Mutual War Risks Association (Bermuda) Ltd [2006] EWHC 617;
[2007] 1 Lloyds Rep 280, Axa Re v Ace Global Markets Ltd [2006] EWHC 216 (Comm); [2006]
Lloyds Rep IR 683.
43 [2003] EWHC 1278 (Comm); [2003] 2 Lloyds Rep 364.
44 [2001] 1 Lloyds Rep 703.
45 [2003] EWCA Civ 938; [2003] 2 Lloyds Rep 509.
46 Companies Act 1989, section 108, substituting section 35 and inserting section 35A of the
Companies Act 1985 (repealed from 1 October 2009 by the Companies Act 2006 and substituted
by sections 39-40 of the 2006 Act). The question of the capacity of foreign corporations to enter
contracts must be answered by reference to the law governing that corporations capacity.
47 [2000] 1 Lloyds Rep 412.
48 See, generally, Insolvency Act 1986 sections 8-27.
49 Discussed in Syska v Vivendi Universal SA [2008] EWHC 2155 (Comm); [2008] 2 Lloyds
Rep 636; [2009] EWCA Civ 677.
50 See, e.g., the references to commercial good sense made by Lord Goff in The Pioneer
Container [1994] 2 AC 324 and the recognition of the presumption of one stop adjudication
in Continental Bank NA v Aeakos Cia Naviera SA[1994] 1 Lloyds Rep 505 and in Harbour
Assurance Co (UK) Ltd v Kansa General International Insurance Co Ltd [1993] QB 701; cf The
Mahkutai [1996] 2 Lloyds Rep 1.
51 Also known as Premium Nafta Products Ltd (20th Defendant) & Ors v Fili Shipping Company
Ltd & Ors [2007] UKHL 40; [2008] 1 Lloyds Rep 254.

52 [2007] EWHC 195 (Comm); [2007] 1 Lloyds Rep 382.


53 Mustill & Boyd, 2nd edn, p. 131.
54 Metal Distributors (UK) Ltd v ZCCM Investment Holdings plc [2005] EWHC 156 (Comm);
[2005] 2 Lloyds Rep 37, Econet Satellite Services Ltd v Vee Networks Ltd [2006] EWHC 1664
(Comm); [2006] 2 Lloyds Rep 423.
55 Aectra Refining v Exmar BV [1994] 1 WLR 1634 suggests that an equitable or transactional
set-off can ordinarily be raised as a defence in an arbitration whereas a legal set-off may be
subject to a procedural bar such as a stay of proceedings, see also Glencore Grain Ltd v Agros
Trading Co [1999] 2 Lloyds Rep 410, discussed at [2000] LMCLQ 153 (Berg)
56 E.g., RW Wood on English and International Set Off (Sweet & Maxwell).
57 Ronly Holdings v JSC Zestafoni Nikoladze Ferroalloy Plant [2004] EWHC 1354 (Comm),
para 33.
58 Metal Distributors (UK) Ltd v ZCCM Investment Holdings plc [2005] EWHC 156 (Comm);
[2005] 2 Lloyds Rep 37, para 17.
59 (1856) 5 HL Cas 811.
60 A Scott v Avery clause postpones but does not annihilate the right of access to the
court: Freshwater v Eastern Australian Assurance Co Ltd [1933] 1 KB 515 at 523.
61 Dennehy v Bellamy [1938] 2 All ER 262.
62 Hardwick Game Farm v Suffolk Agricultural and Poultry Producers Association [1964] 2
Lloyds Rep 227.
63 E.g., the comments of Rix J in Re Qs Estate [1999] 1 Lloyds Rep 931 at 935-6,
considering Mantovani v Carapelli [1980] 1 Lloyds Rep 375.
64 Paragraph 57 of the DAC Report.
65 Hickman & Co v Roberts [1913] AC 229; Toronto Rly Co v National British and Irish Millers
Insurance Co Ltd (1914) 20 Com Cas 1; Woodall v Pearl Assurance Co Ltd [1919] 1 KB 593.
66 Paragraph 99 of the DAC Report.
67 Bremer Vulkan v South India Shipping Corporation [1981] AC 909 and Paal
Wilson v Partenreederei Hannah Blumenthal (The Hannah Blumenthal) [1983] 1 AC 854.

Chapter 5

The Conflict of Laws


The Conflict of Laws

1. Introduction

2. The substance of the dispute


3. The procedure of the arbitration
4. The agreement to arbitrate
5 The reference to arbitration
6. The arbitration award

1. INTRODUCTION
The principles of the conflict of laws (sometimes described as private international law)
determine which system of law governs a particular legal problem and which forum should decide
a dispute. These principles are sometimes of particular relevance in maritime arbitration which, by
reason of its international nature, may give rise to disputes as to which law governs a particular
issue and which tribunal should decide it. These disputes are of practical importance since
different systems of law (or tribunals) will often give rise to different outcomes. This chapter aims
to set out the basic principles determining the law applicable to disputes relating to arbitration.
Reference to specialist works such as Dicey, Morris & Collins on the Conflict of Laws is
recommended for greater detail. Disputes as to whether a case should be decided in English
arbitration or a foreign tribunal are considered further in Chapter 8 on injunctions. Jurisdictional
issues are covered more broadly in Chapters 6 and 7.
The task of determining the law governing a particular issue is generally performed by the arbitral
tribunal but it may sometimes be referred to the court (e.g., as a preliminary issue of law under
section 45 of the 1996 Act). Where an issue as to the applicable law is raised in England (whether
in court or before the arbitrator) in relation to a London maritime arbitration, English rules of
conflict of laws will usually apply to determine which system of law applies. Foreign conflict of
law rules would only apply in the highly unusual case where the parties have made an express and
enforceable choice in favour of those rules. If it becomes necessary to apply foreign law in a
maritime arbitration its content and effect will be regarded as a question of fact, to be proved by
evidence, usually a report from a foreign lawyer although submissions may also be used. In the
absence of such evidence, it will be assumed that foreign law is the same as English law although
there would be no appeal for error of law.1
The general principle is that it is for the parties to choose the law which is to govern the different
aspects of their arbitration, subject only to mandatory provisions in the public interest.2 However,
the rules derived from that principle are complex due to the different aspects of arbitration which
may be governed by different laws; for this reason the 1996 Act does not attempt to codify
them.3 In understanding disputes as to the applicable law it is important to distinguish the different
aspects of the arbitration, each of which might, in theory, be governed by different laws:4

(a) the agreement to arbitrate;


(b) the act of referring the dispute to arbitration (i.e., the reference to arbitration);
(c) the substance of the dispute which is referred to arbitration;
(d) the arbitral procedure;
(e) the arbitration award.

It would be misleading to suggest that it is common for these aspects to be governed by different
laws. Usually the arbitration agreement (and the procedure of the arbitration conducted pursuant
to it) is governed by the same law as the main contract in which it is contained. Occasionally,
however, the laws of different countries may govern different aspects of a single arbitration.5 For
instance, the laws governing the substance of the dispute and the procedure of the arbitration will
be different where London arbitration is used to resolve a dispute arising out of a contract
governed by foreign law. In practical terms the most common issues that arise are as to the law
governing the substance of the dispute, the law governing the procedure of the arbitration and the
law governing the arbitration agreement itself (including issues as to its validity). The law of the
procedure will invariably govern any challenge to the award and questions as to the reference to
arbitration are generally of academic interest only.

2. THE SUBSTANCE OF THE DISPUTE


In most cases the dispute referred to arbitration is contractual and therefore the merits, or
substance, of the dispute will be governed by the proper law of the main contract. The proper law
of the contract may significantly affect the outcome, and choice of a foreign law will preclude an
appeal on grounds of error of law even if the applicable principles of foreign law are identical to
those of English law.6 Section 46 of the 1996 Act prescribes what rules are applicable to the
substance of the dispute. It is based largely on article 28 of the Model Law and appears to follow
the common law principle that, subject to specific exceptions, an arbitrator is under a duty to
apply the law chosen by the parties to govern the merits of the case in the same way as a court.7 It
expressly provides that:

(1) The arbitral tribunal shall decide the dispute


o (a) in accordance with the law chosen by the parties as applicable to the substance of the
dispute, or
o (b) if the parties so agree, in accordance with such other considerations as are agreed by
them or determined by the tribunal.
(2) For this purpose the choice of the laws of a country shall be understood to refer to the
substantive laws of that country and not its conflict of laws rules.
(3) If or to the extent that there is no such choice or agreement, the tribunal shall apply the
law determined by the conflict of laws rules which it considers applicable.

Section 46 is directed towards the law applicable to the substance of the dispute. It may
sometimes be relevant to consider whether an issue is one of substance (governed by the law
applicable to the substance of the dispute) or relates to the procedure of the arbitration (usually
governed by the law of the seat of the arbitration). Detailed consideration of this complex issue is
beyond the scope of this book and may be influenced by the terms of the parties agreement on the
disputed matter.
In Lesotho Highlands Development Authority v Impregilo SpA,8 parties to a construction contract
had agreed that the contract was governed by the law of Lesotho and that payments were to be
made in Lesotho currency. The seat of the arbitration was London and the tribunal made an award
in hard currency and also awarded pre-award interest (which was not permitted under Lesotho
law). The majority of the House of Lords found that the award of currency was a matter of

substance and that the tribunal had erred in law in applying the contract terms. The award of
interest was, however governed by the law of the seat of the arbitration (i.e., the interest
provisions of the 1996 Act) and the pre-award interest involved no error.
Section 46(1)(a) restates the common law principles of the conflicts of law. The mere fact that the
parties have chosen to arbitrate in London will often give rise to a finding that they have impliedly
chosen English law to govern the main contract.9 Section 46(1)(a) allows the parties to choose the
law of a country as opposed to other systems of law, such as religious law.10 Section 46(1)(b)
expressly validates honourable engagement clauses or clauses requiring disputes to be
determined in accordance with principles of international commercial law or general
considerations of justice and fairness (equity clauses). One consequence of such clauses is that
the parties deprive themselves of the right to appeal, since there will be no question of English law
for the court to decide.11 Section 46 is also consistent with parties having an agreement to arbitrate
disputes according to international law (e.g., in the context of a bilateral investment treaty).12
Section 46(2) makes clear that the parties choice of the law of a country shall be understood to
refer to the substantive laws of that country and not its conflict of law rules. This principle, which
derives from the existing English rules of the conflict of laws, prevents the circularity (arising
from the doctrine of renvoi) which may arise where the foreign conflict rules themselves refer the
substantive issue back to English law.
If the parties have not agreed on the applicable law or an equity clause, section 46(3) of the 1996
Act enables the tribunal to decide which laws to apply in accordance with the conflict of laws
rules which it considers applicable. This confers a discretion on the tribunal in deciding which
conflict of law rules to apply and is only likely to be invoked in international commercial
arbitrations usually administered by an institution, for example ICC arbitrations. The DAC was of
the view that the tribunal cannot make up its own conflict of law rules: it only has discretion in
selecting a set of conflict of law rules.13 In a dispute arising under a bilateral investment treaty the
dispute may be decided according to international law.14
In the absence of an express or implied choice of law, most maritime arbitrators will use English
conflict rules to determine the proper law of the contract. The Contracts (Applicable Law) Act
1990 will be applied, unless, exceptionally, different conflict rules have been agreed. Where
tortious claims are referred to London arbitration, the arbitrator will also ordinarily apply English
conflicts rules to determine the law applicable to those claims.

3. THE PROCEDURE OF THE ARBITRATION

Procedure normally governed by law of the seat of the


arbitration
The law governing the procedure or conduct of the arbitration is sometimes called the curial
law.15 According to English conflict rules, the law governing the procedure to be adopted during
the arbitration is usually the law of the seat of the arbitration. Every arbitration must always
have a seat.16 The seat of the arbitration is ordinarily the place where the parties have agreed
that it should be held and it would be unusual for the juridical seat to be different from the venue
chosen for hearings.17 It is generally presumed that by choosing London arbitration, the parties

have impliedly agreed that English procedural law and its conflict of law rules will apply in
support of the arbitration.18 Similarly, if the parties agree on English law to govern the procedure
of the arbitration this will usually amount to a choice of England as the seat of the
arbitration.19 Accordingly, if the parties agree on London as the place of arbitration or choose
LMAA Terms or the rules of any arbitral institution in London, then in the absence of agreement
to the contrary, the parties will be treated as agreeing that the seat of the arbitration is in
England.20 Invariably the law of the seat, the curial law and the procedural law of the arbitration
will coincide.21 A party might very exceptionally agree on England as the seat of the arbitration
but choose some other law to govern a non-mandatory aspect of the arbitration.
English law recognises that the seat of the arbitration means more than its geographical
location; it connotes the legal place of the arbitration in so far as by choosing the legal place of
the arbitration the parties ipso facto choose the laws of that place to govern their arbitration
proceedings.22 Thus the parties could choose London as the seat of the arbitration so that English
law would apply to the procedure but hearings could still take place in other countries, perhaps for
the convenience of witnesses or the arbitrators.23
The law of the seat of the arbitration generally governs the conduct of the arbitration, including
procedural and evidential matters, and also the availability of the English courts supervisory and
supportive powers (e.g., to make a default appointment or to set aside an award for lack of
jurisdiction).24 The law of the seat will govern the effect of the insolvency of an EU party on the
arbitration agreement and the arbitration itself.25
Other principles of English procedural law, including conflicts rules, will generally apply in a
maritime arbitration in London unless the parties have agreed on a different procedural law. A
choice of a foreign seat, or foreign curial rules, for a maritime arbitration taking place in London
would be unusual. The LMAA Terms may still apply even if the parties choose a seat outside
England and Wales; paragraph 7(b) expressly provides:
Where the seat of the arbitration is outside England and Wales the provisions of these Terms
shall nevertheless apply to the arbitral proceedings, save to the extent that any mandatory
provisions of the law applicable to the arbitration agreement otherwise provide.

The 1996 Act26


Application of mandatory provisions
Party autonomy underlies the 1996 Act and it remains possible for parties to choose a foreign law
to apply to the procedure of the arbitration even where its seat is London. A clear intention to
achieve this result would be necessary as it is likely to create practical problems.27 Moreover, if
the parties choose England as the seat of their arbitration the mandatory provisions of the 1996
Act will apply regardless of the parties agreement on foreign procedural law (see Schedule 1 of
the Act which lists the mandatory provisions). The policy appears to be that if parties choose
England as the legal place of their arbitration then they must comply with the mandatory
safeguards imposed in the public interest.28 Thus the parties agreement on foreign law would be
given effect except in relation to matters covered by mandatory provisions (see section 4(5) of the
1996 Act). Where the parties have chosen England as the seat, the choice of another law to govern

the substance of the contract cannot displace the mandatory rules of the 1996 Act and would not
be treated as displacing the non-mandatory rules.29 In order to ensure compliance with the United
Kingdoms international obligations under the New York Convention, section 2(2) of the 1996
Act provides that the English courts powers in relation to stays of court proceedings and
enforcement of awards (sections 9 and 66 of the 1996 Act) will apply even where the parties have
chosen a seat outside the jurisdiction or no seat has been designated.
Designation of the seat of the arbitration
The 1996 Act maintains the concept of the seat as the connecting factor in deciding the law
applicable to the procedure of the arbitration and the courts supportive and supervisory powers.
Under section 2(1), the provisions of Part I of the Act apply where the seat of the arbitration is in
England and Wales or Northern Ireland. Section 3 goes on to explain that:

In this Part the seat of the arbitration means the juridical seat of the arbitration
designated
o (a) by the parties to the arbitration agreement, or
o (b) by any arbitral or other institution or person vested by the parties with powers in that
regard, or
o (c) by the arbitral tribunal if so authorised by the parties,
or determined, in the absence of any such designation, having regard to the parties agreement
and all the circumstances.

The 1996 Act only requires the choice of seat to be designated, thus probably allowing for the
parties implied agreement on the seat (rather than an agreement in writing as required elsewhere
in the Act). If the parties have not designated the seat of the arbitration this will be determined
having regard to the arbitration agreement and relevant circumstances (including the parties, the
nature of the dispute, the proposed procedures, the place of arbitration hearings and the place of
issue of awards) existing at the time the arbitration is started.30 The term juridical seat refers to
the country that has judicial control over the arbitration31 and is used to ensure that there will only
be one seat of the arbitration even if the arbitration takes place in several countries. Once the
arbitration starts then it cannot be changed unless by agreement.32 The procedure in the vast
majority of maritime arbitrations in London will be governed by English law since the choice of
London arbitration will be considered as a designation of London as the juridical seat of the
arbitration. Thus, the 1996 Act will invariably apply to all proceedings in an arbitration governed
by LMAA Terms even if parts of the hearing take place abroad.
In ABB Lummus Global Ltd v Keppel Fels Ltd 33 the arbitration clause in a shipbuilding contract
provided that disputes arising in connection with or as a result of the contract shall be referred
to the LCIA. Disputes shall be settled in accordance with Singapore Law. Clarke J held that this
amounted to an agreement that the juridical seat of the arbitration would be London and the 1996
Act applied.
Under the 1996 Act, the parties are free to agree that the seat of their arbitration should be outside
England and Wales even if hearings and other aspects of the arbitration take place within England
and the LMAA Terms expressly allow for this.34 An English court would recognise and enforce

such a choice, even the choice of a floating curial law, except in so far as it might conflict with
public policy; however, English law does not recognise the concept of a delocalised arbitration.35
The courts supportive powers available regardless of seat
The court may exercise supportive powers under section 2(3) of the 1996 Act (e.g., to preserve
evidence or assets in cases of urgency) even where the seat is outside England. The court may,
however, refuse to grant such relief if the case has insufficient connection with England or where
the exercise of such powers would result in a conflict with the powers of another
jurisdiction.36 The courts supportive powers under section 2(3) are also available where the seat
of the arbitration has not yet been designated. The powers are discretionary and the court may
refuse to exercise such powers if the fact that the seat of the arbitration is likely to be outside
England makes it inappropriate to intervene. The discretion will typically be exercised where
arbitration has not yet been commenced but the seat of the arbitration is extremely likely to be in
London.
Section 2(4) grants the court wide powers to exercise any powers conferred under the 1996 Act
where the seat of the arbitration has not yet been designated or determined and by reason of a
connection with England the court is satisfied that it is appropriate to do so. The discretion could
be appropriately exercised where the arbitration tribunal has not yet been constituted but the seat
of the arbitration is likely to be London. For example, the court could extend time under section
12 even if arbitration had not been properly commenced.37

4. THE AGREEMENT TO ARBITRATE


The proper law of the arbitration agreement is the law governing its validity, meaning and scope
(including questions as to whether a particular dispute falls within its terms), the validity of the
notice to arbitrate, the constitution of the tribunal, and the jurisdiction of the arbitrators.38 It does
not govern questions of procedure, which are almost always matters for the law of the place (or
seat) of the arbitration.39
English common law conflicts rules will usually apply in order to ascertain the proper law of
arbitration agreements because they are outside the scope of the Contracts (Applicable Law) Act
1990.40 Where the exercise of determining the proper law is performed by an English court, it is
clear that the conflicts rules of the forum (i.e., English law) will be applied unless there is an
enforceable agreement otherwise. Similarly, in a London maritime arbitration the tribunal would
apply English conflicts rules to determine the proper law of the arbitration agreement unless,
exceptionally, foreign procedural rules have been chosen. Where there is a jurisdictional dispute
as to whether a matter should be arbitrated in London or decided in a foreign forum, an English
court will apply English law to the dispute if satisfied that the arbitration agreement is governed
by English law.
In Starlight Shipping Co v Tai Ping Insurance Co Ltd 41 a cargo claim arose under a bill of lading
expressly incorporating an arbitration clause in a voyage charter providing for London arbitration
according to English law. Cooke J granted the shipowners an anti-suit injunction restraining cargo
insurers from pursuing the cargo claim in the Chinese courts on grounds that English law applied
and would allow such relief. He regarded it as irrelevant that under Chinese law cargo interests
would not be bound by the arbitration clause.

The intention of the parties is the basic criterion applied in order to determine the proper law of
the arbitration agreement. In the absence of any implied or express choice of law, the arbitration
agreement will be governed by the system of law with which the agreement has its closest and
most real connection. If the parties have not expressly agreed the law which is to govern their
contract, recourse must be had to the surrounding circumstances, which may indicate an implied
choice of law, or the system to which the arbitration agreement is most closely connected.42
In this context, a choice of London as the seat of the arbitration will be a strong factor in
determining the legal system to which the arbitration agreement has its closest and most real
connection.43 The fact that the parties have chosen arbitration in London will also be regarded as
an important, but not decisive, pointer towards a finding that the parties impliedly agreed that the
arbitration agreement should be governed by English law.44 Similarly, if the parties agree to the
application of LMAA Terms (whether expressly or impliedly, in their arbitration agreement, or by
reason of appointing arbitrators subject to LMAA Terms) then paragraph 6(a) of those terms
means that, unless there is contrary agreement, the parties will be treated as having agreed that
English law governs the arbitration agreement.45
Other relevant factors include the language in which the agreement is made, the nationality of the
parties, the currency in which any payment is to be made, the place of performance of the
contract, and, to a lesser extent, the flag of the vessel to which it relates. The nature of contract
involved will be relevant, for example an arbitration clause in a bilateral investment treaty will be
regarded very differently to that contained in a standard shipping contract, and may be governed
by international law even though England has been chosen as the seat of the arbitration.46 It is
important to note that the fact that a charterparty or bill of lading incorporates the Hague or
Hague-Visby Rules by reference to the enacting legislation of a particular country is not regarded
as evidencing an implied choice of the law of that country.47
In The Star Texas,48 a charterparty arbitration clause provided for arbitration in Beijing or
London in defendants option. The Court of Appeal rejected the submission that the arbitration
clause was governed by an implied choice of a floating proper law, holding that it was only
where a single place of arbitration was selected by the parties that an implied choice of law could
be made out. The court accepted that English law applied to the arbitration agreement because this
was the system with which the contract had the closest connection.
Where, as is usually the case in the maritime context, the arbitration clause forms part of a
contract such as a charterparty or a bill of lading, there may also be an express choice of law
clause (which usually coincides with the country in which arbitration is to occur). Although an
arbitration agreement is separable and independent from the main agreement,49 the existence of an
express choice of law clause in the latter will usually be determinative of the proper law of the
arbitration agreement, even if the seat of the arbitration is in another country.
For example, in Sumitomo Heavy Industries Ltd v Oil and Natural Gas Commission,50 the parties
to a contract to install a floating production plant off the coast of South India chose ICC
arbitration in London but agreed that the applicable law of the contract was that of India. Potter J
found that the proper law of the arbitration agreement was probably Indian law, although English
law governed the procedure of the arbitration.

Similarly, in Peterson Farms Inc v C & M Farming Ltd,51 the parties contract contained a choice
of law clause in favour of the law of Arkansas but an arbitration clause referring to ICC arbitration
in the UK. Langley J found that the arbitration agreement was governed by Arkansas law and
rejected an argument based on the doctrine of separability to justify applying a different system of
law to the arbitration agreement.
The proper law of the arbitration agreement will always depend on the particular circumstances
and will not always be the same as the law governing the rest of the contract. For example where
an arbitration clause expressly refers to English law or the Arbitration Act 1996 and makes
England the seat of the arbitration, but is contained in a contract with a foreign choice of law
clause it is more likely to be governed by English law than the foreign governing law.52This is
because the arbitration agreement is likely to have a closer connection with the law of the seat of
the arbitration. It also flows from the principle that the arbitration agreement is separable from the
main contract.
In XL Insurance Ltd v Owens Corning,53 the parties to an insurance contract agreed on arbitration
in England under the provisions of the Arbitration Act 1996, but the governing law of the contract
was that of the State of New York. Toulson J held that by stipulating for arbitration in London
under the 1996 Act the parties had impliedly chosen English law as the proper law of the
arbitration clause.
Where the existence or validity of the arbitration agreement is disputed, the law in accordance
with which this issue is normally determined is that which, assuming that the agreement were
valid, would apply to it (the putative proper law).
In The Atlantic Emperor,54 an arbitration clause providing for London arbitration had been telexed
to buyers but had not been acknowledged by the sellers. It was held that the putative proper law of
the arbitration agreement was English law. Therefore English rules of contract concerning offer
and acceptance would be used to determine whether an agreement had been concluded.
However, Article 8(2) of the Rome Convention may modify this principle to some extent to
enable a party to have recourse to the law of the country in which he has his habitual residence to
establish that he did not consent if it appears that in the circumstances it would not be reasonable
to determine the effect of his conduct in accordance with the putative proper law. Such recourse
would be fairly rare.
In Welex A.G. v Rosa Maritime Ltd. (The Epsilon Rosa) (No. 2),55 a bill of lading expressly
incorporated the arbitration clause in the charter referred to on the bill. The charter was evidenced
by a recap telex referring to ARB IN LONDON ENG LAW TO APPLY. The claimant was
based in Switzerland and relied on Article 8(2) of the Rome Convention to seek to apply Swiss or
Ukrainian law (as opposed to English law) to the question of incorporation. The applicability of
the Rome Convention to the issue of the incorporation of an arbitration agreement
(notwithstanding the exclusion of arbitration agreements in Article 1(2)(d)) was not challenged
and David Steel J held there was nothing unreasonable in applying English law since the
transaction was entirely conventional and the incorporation of arbitration clauses was
commonplace in this context.

5. THE REFERENCE TO ARBITRATION

There is a distinction between the original arbitration agreement and the acts of referring disputes
to arbitration and appointing arbitrators, which constitute new agreements in
themselves.56 Traditionally it was expected that the law governing the agreement to refer to
arbitration would be the same as that of the arbitration agreement.57 It was also considered that the
law governing the agreement to refer a particular dispute to arbitration would govern the parties
duties to conduct the reference and the parties relationship with the arbitrator.58 Under the 1996
Act, however, most aspects of these matters will be governed by English law if London is the seat
of the arbitration, regardless of the law governing the arbitration agreement or the reference
(indeed the parties statutory duty to proceed expeditiously with the arbitration applies
mandatorily). Accordingly, in the absence of an enforceable agreement to the contrary, it will
rarely be useful to draw a distinction between the reference to arbitration and the procedure of the
arbitration. Sometimes, however, it may be useful to distinguish the law governing the parties
relationship with the tribunal and the law governing the procedure of the arbitration. Where an
arbitrator is appointed on LMAA Terms, it is implicit that, unless expressly agreed otherwise, his
appointment will be governed by English law.59

6. THE ARBITRATION AWARD


Issues as to whether an award can be challenged in the English courts, and the application of the
courts supervisory powers over awards under Part I of the 1996 Act will depend on whether the
juridical seat of the arbitration is in England (see section 3 above). The choice of London as the
seat of the arbitration is treated by the English courts as analogous to the choice of an exclusive
jurisdiction for the supervision of the award and the court may restrain a party who seeks to
invoke the supervisory jurisdiction of another court.60
In C v D 61 an insurance policy was governed by US law but the parties had chosen London
arbitration in accordance with the 1996 Act. One of the parties sought to challenge the award in
the New York courts. The Court of Appeal held that the choice of seat of the arbitration is a
choice of the same forum for remedies to challenge the award. The appropriate remedy was an
anti-suit injunction restraining the New York proceedings.
The recognition and enforcement of an award under the New York Convention62 depends on
where it is made. The UK is a party to the Convention and makes provision for enforcement of
awards made outside the UK63 under Part III of the 1996 Act. Part I applies to awards made in
England and Wales or Northern Ireland. Section 53 makes clear that in the absence of contrary
agreement an award will be treated as being made at the seat of the arbitration:
Unless agreed otherwise by the parties, where the seat of the arbitration is in England and Wales
or Northern Ireland, any award in the proceedings shall be treated as made there, regardless of
where it was signed, despatched or delivered to any of the parties.
As explained above, an arbitration agreement providing for arbitration in London (as is typical for
maritime arbitrations) will almost invariably be treated as a choice of England as the juridical seat
of the arbitration. This means that an award made pursuant to that agreement will be ordinarily be
treated as made in England, thus subject to the courts powers of enforcement and its other
supervisory powers under Part I of the 1996 Act, regardless of whether the award might have been
signed or drafted elsewhere.64 The remedy of appeal against an award on the ground of error of

law is not mandatory and may be excluded by agreement in writing. Other supervisory powers
over awards (typically remission on grounds of serious irregularity) will, however, apply
mandatorily unless the parties have designated a seat outside England and Wales (see above).
Powers of enforcement under section 66 of the 1996 Act will apply regardless of the seat of the
arbitration,65 but will not usually be applied where the seat of the arbitration is outside the UK
since the award would then be treated as a foreign award governed by Part III.
1 Hussmann (Europe) Ltd v Al Ameen Development & Trade Co [2000] 2 Lloyds Rep 83, para
42, s 82(1) of the 1996 Act.
2 XL Insurance Ltd v Owens Corning [2000] 2 Lloyds Rep 500 at 506.
3 Paragraph 24 of the DAC Report.
4 Naviera Amazonica Peruana SA v Compania Internacional de Seguros del Peru [1988] 1
Lloyds Rep 116 at 119, Sumitomo Heavy Industries Ltd v Oil and Natural Gas
Commission [1994] 1 Lloyds Rep 45 at 56.
5 E.g., Union of India v McDonnell Douglas Corporation [1993] 2 Lloyds Rep 48.
6 Section 82(1) of the 1996 Act, see Egmatra AG v Marco Trading Corporation [1999] 1 Lloyds
Rep 862; Sanghi Polyesters Ltd (India) v International Investor (KCFC) (Kuwait) [2000] 1
Lloyds Rep 480, Reliance Industries v Enron Oil & Gas India Ltd [2002] 1 All ER (Comm) 59.
7 Wealands v CLC Contractors Ltd [1999] 2 Lloyds Rep 739 at 749.
8 [2005] UKHL 43; [2005] 2 Lloyds Rep 310.
9 Compagnie dArmement Maritime SA v Compagnie Tunisienne de Navigation SA [1971] AC
572. The choice of law need not be in writing since it is not referred to as an agreement, see
section 5(1) of the 1996 Act.
10 Musawi v RE International (UK) Ltd [2007] EWHC 2981 (Ch); [2008] 1 Lloyds Rep 326,
although the Court of Appeal considered section 46(1)(a) would cover international law
in Republic of Ecuador v Occidental Exploration and Production Co [2005] EWCA Civ 116;
[2005] 2 Lloyds Rep 707, para 33.
11 A question of law is defined in section 82 not to cover questions of foreign law.
12 Republic of Ecuador v Occidental Exploration and Production Co [2005] EWCA Civ 116;
[2005] 2 Lloyds Rep 707, para 33.
13 Paragraph 225 of the DAC Report.
14 Republic of Ecuador v Occidental Exploration and Production Co [2005] EWCA Civ 116;
[2005] 2 Lloyds Rep 707, para 33.
15 In Paul Smith Ltd v H & S International Holding Inc [1991] 2 Lloyds Rep 127 at 130, Steyn J
distinguished between rules of procedure (which depend upon the choice of the parties) and the
curial law (a body of rules which sets a standard external to the arbitration agreement and the
wishes of the parties, for the conduct of the arbitration). Saville J in Union of India v McDonnell
Douglas Corporation [1993] 2 Lloyds Rep 48 at 50 also recognised the undesirable possibility of

different laws governing the internal and external supervision of the arbitration. Section 2(1) of
the 1996 Act clarifies the extent to which that statute will apply to both aspects of the conduct of
the arbitration. A potential distinction between the law of the seat of the arbitration and the curial
law was also drawn in Dubai Islamic Bank PJSC v Paymentech Merchant Services Inc [2001] 1
Lloyds Rep 65. In practice though, the two concepts tend to be elided and both are referred to as
the curial law.
16 Naviera Amazonica Peruana SA v Compania Internacional de Seguros del Peru [1988] 1
Lloyds Rep 116; Dubai Islamic Bank PJSC v Paymentech Merchant Services Inc [2001] 1
Lloyds Rep 65.
17 Shashoua v Sharma [2009] EWHC 957 (Comm). See also Braes of Doune Wind Farm
(Scotland) Ltd v Alfred McAlpine Business Services Ltd [2008] EWHC 426 (TCC); [2008] 1
Lloyds Rep 608 where the parties arbitration clause was unusual in choosing English law to
govern the arbitration agreement but Glasgow as the seat of the arbitration.
18 See, generally, Coppee-Lavalin SA/NV v Ken-Ren Chemicals & Fertilizers Ltd [1994] 2
Lloyds Rep 109 where the House of Lords held that the courts would apply principles of English
procedural law to support a maritime arbitration. See also C v D [2007] EWCA Civ 1282; [2008]
1 Lloyds Law Rep 239.
19 Naviera Amazonica Peruana SA v Compania Internacional de Seguros del Peru [1988] 1
Lloyds Rep 116.
20 Paragraph 6(b) of the LMAA Terms. If the arbitration agreement originally provided
(expressly or impliedly) for a seat outside England then this would probably be treated as
agreement to the contrary preventing application of this term.
21 C v D [2007] EWHC 1541 (Comm); [2007] 2 Lloyds Rep 367 at 374.
22 ABB Lummus Global Ltd v Keppel Fels Ltd [1999] 2 Lloyds Rep 24 (decided under the 1996
Act), and Union of India v McDonnell Douglas Corporation [1993] 2 Lloyds Rep 48 at 50 and
relied upon in the DAC Supplementary Report on the Arbitration Act 1996, paragraph 11.
23 Section 34(2)(a) of the 1996 Act, Naviera Amazonica Peruana SA v Compania Internacional
de Seguros del Peru [1988] 1 Lloyds Rep 116 at 121.
24 C v D [2007] EWCA Civ 1282; [2008] 1 Lloyds Law Rep 239, para 39.
25 Syska v Vivendi Universal SA [2009] EWCA Civ 677 (in relation to EU insolvency rules).
26 See also Chapter 2 on the application of the Act.
27 ABB Lummus Global Ltd v Keppel Fels Ltd [1999] 2 Lloyds Rep 24 and Union of
India v McDonnell Douglas Corporation [1993] 2 Lloyds Rep 48.
28 Section 1(b) of the 1996 Act.
29 XL Insurance Ltd v Owens Corning [2000] 2 Lloyds Rep 500, C v D [2007] EWCA Civ 1282;
[2008] 1 Lloyds Law Rep 239.

30 Dubai Islamic Bank PJSC v Paymentech Merchant Services Inc [2001] 1 Lloyds Rep 65, Arab
National Bank v El-Abdali [2004] EWHC 2381; [2005] 1 Lloyds Rep 541 at 544.
31 Braes of Doune Wind Farm (Scotland) Ltd v Alfred McAlpine Business Services Ltd [2008]
EWHC 426 (TCC); [2008] 1 Lloyds Rep 608.
32 Dubai Islamic Bank PJSC v Paymentech Merchant Services Inc [2001] 1 Lloyds Rep 65 at
73; ABB Lumus Global Ltd v Keppel Fels Ltd [1999] 2 Lloyds Rep 24 at 33 and Union of
India v McDonnell Douglas [1993] 2 Lloyds Rep 48 at 50.
33 [1999] 2 Lloyds Rep 24.
34 Paragraph 7(b).
35 Naviera Amazonica v Peruana SA v Compania Internacional de Seguros del Peru [1988] 1
Lloyds Rep 116 at 119; Dubai Islamic Bank PJSC v Paymentech Merchant Services Inc [2001] 1
Lloyds Rep 65 at 73; cf Dallal v Bank Mellat [1986] 1 QB 441 at 458, where Hobhouse J
recognised that a transnational curial law was conceptually possible. In Star Shipping AS v China
National Foreign Trade Transportation Corporation, The Star Texas [1993] 2 Lloyds Rep 445
the Court of Appeal rejected a floating proper law of the arbitration agreement but accepted that a
floating curial law (which might fix when arbitration began, in line with the analysis in Dubai
Islamic Bank) was not a concept repugnant to English law.
36 DAC Supplementary Report on the Arbitration Act 1996, paragraph 15.
37 See paragraph 16 of the DAC Report which appears to affirm that this principle is maintained
under sections 2(1) and 4(5) of the 1996 Act. See International Tank and Pipe SAK v Kuwait
Aviation Fuelling Co KSC [1975] QB 224;Mitsubishi Corporation v Castletown Navigation
Ltd, The Castle Alpha [1989] 2 Lloyds Rep 383, and Chapter 9 below.
38 Sumitomo Heavy Industries Ltd v Oil and Natural Gas Commission [1994] 1 Lloyds Rep 45 at
56.
39 See section 3 above on the law governing the procedure of the arbitration.
40 The 1990 Act enacts the Rome Convention on the Law Applicable to Contractual Obligations
between the Member States of the European Communities and does not apply to arbitration
agreements, see Article 1(2)(d). Rome Convention principles may, however, apply to the issue as
to whether there was consent to any arbitration agreement at all (e.g., Welex A.G. v Rosa Maritime
Ltd. The Epsilon Rosa (No 2) [2002] EWHC 2035 (Comm); [2002] 2 Lloyds Rep 701) see by
analogy Allianz SpA v West Tankers Inc Case C-185/07 [2009] 1 Lloyds Rep 413, para 26.
41 [2007] EWHC 1893 (Comm); [2008] 1 Lloyds Rep 230, para 14, see also Tamil Nadu
Electricity Board v ST-CMS Electric Company Private Ltd [2007] EWHC 1713 (Comm); [2008] 1
Lloyds Rep 93, para 35.
42 Compagnie dArmement Maritime SA v Compagnie Tunisienne de Navigation SA [1971] AC
572.

43 E.g., Deutsche Schachtbau-und Tiefbohrgesellschaft mbH v Ras Al Khaimah National Oil


Co [1987] 2 Lloyds Rep 246 at 249, agreement to arbitrate in Switzerland held to be governed by
Swiss law.
44 Compagnie dArmement Maritime SA v Compagnie Tunisienne de Navigation SA [1971] AC
572; Star Shipping AS v China National Foreign Trade Transportation Corporation, The Star
Texas [1993] 2 Lloyds Rep 445 at 451.
45 Paragraph 6(a) of the LMAA Terms.
46 Republic of Ecuador v Occidental Exploration and Production Co [2005] EWCA Civ 116;
[2005] 2 Lloyds Rep 707, para 33, departing from Hobhouse Js suggestion in Dallal v Bank
Mellat [1986] 1 QB 441 that an arbitration agreement must be subject to a domestic system of
law.
47 Mineracoas Brasilieras Reunidas v E.F. Marine SA, The Freights Queen [1977] 2 Lloyds Rep
140.
48 Star Shipping AS v China National Foreign Trade Transportation Corporation, The Star
Texas [1993] 2 Lloyds Rep 445. Even if a floating choice of law for the arbitration agreement is
found to fail for uncertainty, the court will be willing to uphold the arbitration agreement
itself: Sonatrach Petroleum Co (BVI) v Ferrell International Ltd [2002] 1 All ER (Comm) 627.
49 Section 7 of the 1996 Act and Harbour Assurance Co (UK) Ltd v Kansa General International
Insurance Co Ltd [1993] QB 701.
50 [1994] 1 Lloyds Rep 45.
51 [2004] EWHC 121 (Comm), [2004] 1 Lloyds Rep 603.
52 C v D [2007] EWCA Civ 1282; [2008] 1 Lloyds Law Rep 239, Shashoua v Sharma [2009]
EWHC 957 (Comm).
53 [2000] 2 Lloyds Rep 500.
54 Marc Rich & Co AG v Societa Italiana Impianti PA, The Atlantic Emperor [1989] 1 Lloyds
Rep 548.
55 [2002] EWHC 2035 (Comm); [2002] 2 Lloyds Rep 701.
56 E.g., Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1981] 2
Lloyds Rep 446 at 455 and Sumitomo Heavy Industries Ltd v Oil and Natural Gas
Commission [1994] 1 Lloyds Rep 45 at 57.
57 Black-Clawson International Ltd v Papierwerke Waldhof-Aschaffenburg AG [1981] 2 Lloyds
Rep 446 at 455; Dubai Islamic Bank PJSC v Paymentech Merchant Services Inc [2001] 1 Lloyds
Rep 65.
58 Sumitomo Heavy Industries Ltd v Oil and Natural Gas Commission [1994] 1 Lloyds Rep 45 at
57.
59 Paragraph 6 makes clear that English law applies to the arbitration agreement.

60 C v D [2007] EWCA Civ 1282; [2008] 1 Lloyds Law Rep 239.


61 [2007] EWCA Civ 1282; [2008] 1 Lloyds Law Rep 239.
62 The Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted by
the United Nations Conference on International Commercial Arbitration on 10 June 1958.
63 More specifically, Part III of the Act deals with awards made, in pursuance of an arbitration
agreement, in territories of states (other than the UK) which are party to the New York
Convention. Section 100(2)(b) follows section 53 in that an award shall be treated as made at the
seat of the arbitration, regardless of where it was signed, despatched or delivered to any of the
parties. Part II of the 1950 Act continues to apply to foreign awards made in non-Convention
countries, see section 99 of the 1996 Act.
64 Hiscox v Outhwaite [1992] 1 AC 562. Section 53 reverses the reasoning underlying this
decision (but not the result).
65 Section 2(2) of the 1996 Act.

hapter 6

Disputes about the Tribunals Jurisdiction


Disputes about the Tribunals Jurisdiction

1. Introduction
2. Types of jurisdictional issues
3. Separability
4. The scheme of the statutory provisions
5. Tribunals power to rule on jurisdictional issues
6. Courts power to determine jurisdictional issues
7. Arbitral proceedings pending challenges to jurisdiction
8. Loss of the right to object.

1. INTRODUCTION
An arbitrators jurisdiction is the power conferred on him to determine the dispute between the
parties and to make final decisions which are binding on them. This power derives from the
arbitration agreement between the parties and from the steps, such as appointment, which are
taken pursuant to that agreement to refer the dispute to arbitration. If the tribunal lacks
jurisdiction, then any award which it makes will be without effect, and the costs incurred in the
arbitration will be wasted.
Challenges to the tribunals jurisdiction raise a logical problem. How can an arbitrator make a
binding ruling to the effect that he has no power to bind the parties? If the agreement containing
the arbitration clause is void or ineffective, from where does the tribunal derive jurisdiction to rule
that this is the case? English law traditionally took a strictly logical approach precluding the
tribunal from ruling on its jurisdiction. Many other legal systems (and the UNCITRAL Model

Law) preferred to enable the tribunal to rule on jurisdictional disputes. This was achieved mainly
by the doctrine of Kompetenz-Kompetenz under which a tribunal is allowed to rule on its
jurisdiction, and also the doctrine of separability under which the arbitration agreement remains
effective notwithstanding challenges to the validity of the contract in which it is contained. These
doctrines are now considered as being more consistent with the parties choice to arbitrate than the
traditional approach. English law under the 1996 Act has now largely adopted the doctrines of
Kompetenz-Kompetenz and separability. This means that in most cases the tribunal will make an
initial ruling on a dispute about its jurisdiction, although the issue may ultimately be decided by
the court.
Challenges to jurisdiction are relatively common, and are sometimes employed as a means of
delaying arbitral proceedings or seeking to evade an obligation to arbitrate. The DAC recognised
this1 and the 1996 Act contains provisions designed to limit the use of such tactics.

Common law background


It is perhaps worth considering the provisions of the 1996 Act against the background of the
common law which preceded it.
The orthodox common law view, represented by the decision of the House of Lords
in Heyman v Darwins 2 was that, although the arbitrator could take a provisional view as to
whether he had jurisdiction to determine (for example) the validity of the main contract, his
decision was not finally binding on the parties since he lacked the power to decide the scope and
existence of his own jurisdiction. According to this traditional principle, such issues could only
finally be determined by a different tribunalusually the court.
In Heyman v Darwins, the parties concluded an agency agreement whereby the claimants would
sell quantities of steel on behalf of the defendant steel manufacturers. The contract contained an
arbitration clause. The defendants discovered that, contrary to the agreement, the claimants had
been selling steel in circumstances which might expose them to possible claims from purchasers
and therefore stopped providing steel to the claimants. The claimants commenced court
proceedings seeking a declaration that the defendants had repudiated the agreement. The
defendants obtained a stay of those proceedings on the ground that the claim should, in
accordance with the terms of the contract, be referred to arbitration. In granting this relief, the
court drew a distinction between challenges based on the premise that the contract was void ab
initio (over which the tribunal would have no jurisdiction) and those based on the assertion that
the contract was merely voidable (which fell within the tribunals remit). Viscount Simon
summarised the position thus: if one party to the alleged contract is contending that it is
void ab initio the arbitration clause cannot operate, for, on this view, the clause itself is also
void.
It was clear, therefore, that the tribunal could not make a final and binding decision on the issue of
the existence or scope of its own jurisdiction. Any such determination had to be made by another
tribunal. Alternatively, the parties could enter a separate agreement conferring on the tribunal
jurisdiction to determine its own jurisdiction in relation to the main dispute.

As a matter of practice, however, the common law always recognised that a tribunal must take a
view as to the existence (or otherwise) of its own jurisdiction, and that it will usually make a
provisional ruling on that issue. The common law position was explained by Devlin J
in Christopher Brown v Genossenschaft Osterreichischer Waldbesitzer:3
It is not the law that the arbitrators, if their jurisdiction is challenged or questioned, are bound
immediately to proceed to act, or to refuse to act, until their jurisdiction has been determined by
some court which has power to determine it finally. Nor is it the law that they are bound to go on
without investigating the matter in dispute, leaving the question of their jurisdiction to be held
over until it is determined by some court which had power to determine it. They might then be
merely wasting their time and everybody elses. They are not obliged to take either of these
courses. They are entitled to inquire into the merits of the issue as to whether they have
jurisdiction or not, not for the purpose of reaching any conclusion which will be binding upon the
partiesbecause that they cannot dobut for the purposes of satisfying themselves as a
preliminary matter about whether they ought to go on with the arbitration or not. If it became
abundantly clear to them, on looking into the matter, that they obviously had no jurisdiction
then they might well take the view that they were not going to go on with the hearing at all. They
are entitled, in short, to make their own inquiries in order to determine their own course of action,
and the result of that inquiry has no effect whatsoever upon the rights of the parties.
The provisions of the 1996 Act (explained in detail below) build upon the common law position,
by giving the tribunal competence to rule upon jurisdictional challenges, while recognising that
any such ruling is subject to review by the courts. This reflects the key principle of party
autonomy, and is intended to minimise the use of jurisdictional challenges as a delaying tactic. In
practice, however, the right to challenge the tribunals ruling in court (by means of a full hearing)
means that a determinedly recalcitrant party can still delay an arbitration by raising spurious
jurisdictional challenges. Furthermore, although the provisions of the Act will govern most
jurisdictional challenges, the court has recognised that it has, in addition, an inherent power to rule
on jurisdictional issues, which it may choose to exercise even though the conditions for the
exercise of its statutory powers are not satisfied.4

2. TYPES OF JURISDICTIONAL ISSUE


Section 30 of the 1996 Act defines issues as to the tribunals substantive jurisdiction5 in terms of
three categories:

(a) whether there is a valid arbitration agreement,


(b) whether the tribunal is properly constituted, and
(c) what matters have been submitted to arbitration in accordance with the arbitration
agreement.

Whether there is a valid arbitration agreement


This represents the most usual type of jurisdictional issue and arises where the defendant in the
arbitration contends that there is no arbitration agreement at all, or that the arbitration agreement
does not, on its true construction, extend to the disputes which the claimant has sought to refer to
arbitration.

Sometimes this type of jurisdictional objection arises where the defendant denies the existence, or
continued existence, of the host contract which contains the arbitration agreement. For example,
challenges to the initial existence of the host contract may be founded upon allegations of lack of
consensus, lack of consideration, or lack of authority. Challenges to the continued existence of the
host contract may be based upon allegations of misrepresentation, non-disclosure, repudiation,
fundamental breach, termination, mistake or frustration. The essence of such allegations is that
although the contract was valid when it was made, it has ceased, or should cease, to exist because
of supervening factors. The approach of the courts to the doctrine of separability (see further
below) means that such challenges have only limited prospects of success. It is only if the relevant
factors apply specifically to the arbitration agreement (and not merely to the agreement as a
whole) that the jurisdiction of the tribunal is likely to be affected.
Issues of agency, or identification of the correct parties to the arbitration agreement, can
sometimes give rise to jurisdictional issues. For example, if arbitration is commenced against a
party who is not named as party to the arbitration agreement, the tribunal will lack jurisdiction.
In Internaut Shipping GmbH v Fercometal SARL,6 (a pre-1996 Act case), disputes arose under a
Gencon charterparty. Arbitration was commenced by owners by solicitors authorised by Gard,
who were the P&I Club for Internaut Shipping. However, subsequent claim submissions identified
the owners as Sphinx and the third arbitrator was appointed after the claimant had been thus
identified. Once the inconsistency was identified, a further arbitration was commenced in the
name of Sphinx, but the two references were not consolidated. The Court of Appeal held that
Internaut was the only party to the charter, that the naming of Sphinx in the claim submissions had
not been a mere misnomer and that the arbitration in which Sphinx was named as claimant was a
jurisdictional nullity.
Sometimes, a party may accept that there is a valid arbitration agreement, but deny that it applies
to the dispute in question (e.g., that the dispute arises under the relevant contract). Determining
such an issue will require the arbitration agreement to be construed. Generally, English law adopts
a liberal approach to construction of arbitration agreements.7 Furthermore, in the context of
LMAA arbitration, paragraph 10 of the LMAA Terms provides:
10. Notwithstanding the terms of any appointment of an arbitrator, unless the parties otherwise
agree the jurisdiction of the tribunal shall extend to determining all disputes arising under or in
connection with the transaction the subject of the reference, and each party shall have the right
before the tribunal makes its award (or its last award, if more than one is made in a reference) to
refer to the tribunal for determination any further dispute(s) arising subsequently to the
commencement of the arbitral proceedings.
This is an extremely broad formulation, covering all disputes arising in connection with the
transaction which is the subject of the reference. Therefore, unless the parties have sought to cut
down the scope of this provision in their arbitration clause, most disputes which arise (including
counterclaims or set-offs, possibly even arising under separate but related contracts) will fall
within the scope of the arbitration agreement for the purposes of section 30. For further discussion
of the principles which determine whether a counterclaim or set-off falls within the scope of an
arbitration agreement, see Chapter 4.

Whether the tribunal is properly constituted


This category raises questions relating to the appointment of the tribunal and, in particular,
whether the contractual or statutory requirements governing appointment have been complied
with. For example, the arbitration clause may require appointments to be made by a third party, or
may specify certain preconditions to appointment (such as the completion of ADR procedures).
The position is not entirely clear, but the better view is probably that a lack of specified
qualifications does not affect the tribunals jurisdiction (though it may be a ground for removal
under section 24 of the 1996 Act).8

What matters have been submitted to arbitration in


accordance with the arbitration agreement
The final category of jurisdictional issue raises the question of whether the claims advanced fall
outside the scope of the reference to arbitration and, therefore, outside the jurisdiction of the
tribunal.
In The World Era9 disputes arose under a voyage charterparty which formed part of a chain of
back-to-back charters. Charterers claimed that a breach of the charterparty by owners had caused
liability on their part down the chain. Arbitrators were appointed to resolve the issue of whether
owners were liable to charterers for damages for breach of charter, and points of claim were
served. By a later amendment, charterers sought to argue that they had entered the charterparty as
agents for undisclosed principal on whose behalf they were now claiming damages. It was held
that the claim referred to arbitration was a simple claim for damages for breach of charterparty
and that the arbitrators had no jurisdiction to hear or determine the new claim based on the
allegation that charterers were agents for an undisclosed principal.
Again, however, such arguments arise relatively rarely in LMAA arbitrations because of the
provisions of paragraph 10 of the LMAA Terms, which permit disputes to be introduced into the
reference at any time before the tribunal gives notice of its intention to proceed to an award.

3. SEPARABILITY
The doctrine of separability is based upon a legal fiction, by virtue of which the arbitration
agreement is regarded as a separate and collateral contract which is unaffected by the invalidity or
unenforceability of the main host agreement between the parties. It follows that issues relating
to the validity or enforceability of the main contract will not affect the tribunals jurisdiction
arising under the separable arbitration clause. Were it otherwise, some other tribunal (probably the
court) would have to determine these issues.
The doctrine developed in part as a response to parties seeking to evade their obligations to
arbitrate by the simple expedient of raising issues involving indirect challenges to the tribunals
jurisdiction.10 The doctrine of separability gives effect to the parties intentions of adopting onestop adjudication and ensures that all issues are determined by the chosen arbitral tribunal.
The doctrine of separability was recognised in the common law before the 1996 Act11 and is now
given statutory force by section 7, which provides:

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 regarded as invalid,
nonexistent or ineffective because that other agreement is invalid, or did not come into existence,
or has become ineffective, and it shall for that purpose be treated as a distinct agreement.
It would be extremely rare in practice for the parties to agree, either before or after disputes have
arisen, that an arbitration agreement was not to be regarded as a separate agreement. The
qualification provided by the words or was intended to form is probably intended to preclude
the argument that, technically, an arbitration agreement cannot form part of another
unenforceable or invalid agreement (though it may well be intended to do so). The final phrase of
the section (and it shall for that purpose be treated as a distinct agreement) emphasises that the
concept of separability applies only for the purposes of Part I of the 1996 Act. Thus, for example,
the issue of whether an arbitration clause has been assigned along with other rights in the
substantive agreement or incorporated by reference into another contract is not affected by the
doctrine of separability.12
The limits of the doctrine of separability are reached where the non-existence or invalidity of the
main contract also directly impeaches the arbitration clause. In such a case, the tribunal cannot,
logically, have jurisdiction to hear or determine any disputes
In Fiona Trust & Holding Corporation & Ors v Privalov & Ors,13 the Owners alleged that
charters had been concluded as a result of bribes paid to their representatives, and purported to
rescind the charters. The charterers commenced arbitrations, prompting the Owners to apply to the
English court pursuant to section 72 of the Act for an injunction restraining the arbitration on the
basis that the charterparties, and the arbitration agreements contained in them, had been rescinded.
Refusing the injunction, the Court of Appeal indicated that the arbitration agreement will be
impeached only if there are independent vitiating factors which directly affect the arbitration
agreement, and not merely the main host agreement. The Court of Appeal gave examples of
such situations: mistake as to the identity of the contracting parties, non est factum, or a case
where the parties had failed to reach any agreement at all. Another situation in which the
arbitration agreement might be directly impeached is where there is an absence of intention to
create legal relations. In each of these situations, there has never been any concluded agreement
between the parties: it follows that the alleged arbitration agreement never came into existence,
and is directly impeached. The Court of Appeals decision was upheld by the House of Lords.14

4. THE SCHEME OF THE STATUTORY PROVISIONS


The 1996 Act envisages two basic situations in which a jurisdictional issue might arise. First, the
party who challenges jurisdiction may simply ignore the arbitration altogether. If he refuses to
participate at all, his right to apply to the court for injunctive or declaratory relief, or to challenge
any award which is made, is saved expressly by the Act.
If, however, the challenging party participates in the arbitration for the purposes of having the
jurisdictional issue determined within the arbitral remit, then in most cases the tribunal will rule
on the issue (though any such ruling may later be challenged in court). Alternatively, in some very
limited situations, the court may make the first preliminary ruling on jurisdiction. The position
was well described by Rix J in Azov Shipping Co v Baltic Shipping Co:15

Where a challenge to an arbitrators substantive jurisdiction is made, the party that challenges the
jurisdiction has a number of options under the Act. It may agree to participate in the argument
before the arbitrator of the question of his competence and jurisdiction: see section 30 of the Act.
It may do so while reserving its right to challenge the arbitrators award as to his own competence
(see section 67). Of course, it may accept the award of the arbitrator even though it be against its
own submission. In that case no question of challenge arises.
Alternatively, it may seek, without arguing the matter before the arbitrator, to promote the
determination of the preliminary point of jurisdiction by the court under section 32.
The third option of someone disputing an arbitrators jurisdiction is to stand aloof and question the
status of the arbitration by proceedings in court for a declaration, injunction or other appropriate
relief under section 72 of the Act. In such a case he is in the same position as a party to arbitral
proceedings who challenges an award under section 67 on the ground that there was no
substantive jurisdiction. He takes the risk, however, that in the meantime an award on the merits
might be entered against him.
Those basic choices are reflected in the statutory provisions which govern the determination of
jurisdictional issues.

5. TRIBUNALS POWER TO RULE ON ITS OWN JURISDICTION

Source of the tribunals power


Section 30 of the 1996 Act confers on the tribunal the power to rule upon its own jurisdiction in
the following terms:

(1) Unless otherwise agreed by the parties, the arbitral tribunal may rule on its own
substantive jurisdiction, that is, as to
o (a) whether there is a valid arbitration agreement;
o (b) whether the tribunal is properly constituted; and
o (c) what matters have been submitted to arbitration in accordance with the arbitration
agreement.

The LMAA Terms do not contain any provision addressing the tribunals power to rule on its
jurisdiction, and so the position is governed by section 30.
Despite the unqualified wording of section 30, it is not intended to confer on the tribunal power to
make a final ruling. The DAC stated that clearly the tribunal cannot be the final arbiter of a
question of jurisdiction for this would provide a classic case of pulling oneself up by ones own
bootstraps.16 Instead, the provision enables the arbitrator to take a view and, if necessary, rule on
his own jurisdiction, but recognises that any such ruling always remains subject to review by the
court. This has significant practical consequences, because either party can challenge the
tribunals ruling as of right; furthermore, the challenge takes the form of a complete re-hearing
rather than merely a review of the tribunals reasoning (see below).17

Relationship with stays

The provisions of sections 30 and 9 have raised the question of what approach the court should
adopt on a section 9 stay application where the existence or scope of the arbitration agreement is
challenged. Under section 9, which is a mandatory provision, the court must grant a stay unless
satisfied that the arbitration agreement is null and void, inoperative, or incapable of being
performed. These matters, however, represent challenges to the tribunals jurisdiction. Under
section 30, the tribunal has the power to rule on them, and the policy of the Act is that generally
the tribunal and not the court should take the first view on such issues. Who, then, should decide
these issuesthe court or the tribunal?
For reasons of convenience, the courts have taken the view that in most cases, it should decide the
issues as part of the section 9 stay application. This avoids the costs and delays of referring the
issue to the tribunalespecially as the tribunals ruling would be open to challenge as of right
(see below).
However, there are some circumstances in which the court will stay its own proceedings, pursuant
to its inherent jurisdiction, to enable the tribunal to rule on the jurisdictional issue. Those
circumstances are:

Where it is virtually certain that there is a valid effective arbitration agreement (and,
therefore, the chances of successfully challenging the tribunals ruling are remote).
Where there is an arbitration agreement, and the only dispute relates to its precise scope.
Where the jurisdictional issues are inextricably intertwined with the substantive disputes.18

Only in exceptional cases will the court grant a stay pursuant to its inherent jurisdiction.19 In most
cases, it will simply decide the issue as part of the section 9 application.20

Practice
The procedure for seeking a ruling from the tribunal is governed by section 31 of the 1996 Act,
which sets out various provisions governing the timing of any application. Section 31 provides:
(1) An objection that the arbitral tribunal lacks substantive jurisdiction at the outset of the
proceedings must be raised by a party not later than the time he takes the first step in the
proceedings to contest the merits of any matter in relation to which he challenges the tribunals
jurisdiction.
A party is not precluded from raising such an objection by the fact that he has appointed or
participated in the appointment of an arbitrator.
(2) Any objection during the course of the arbitral proceedings that the arbitral tribunal
isexceeding its substantive jurisdiction must be made as soon as possible after the matter alleged
to be beyond its jurisdiction is raised.
(3) The arbitral tribunal may admit an objection later than the time specified in subsection (1) or
(2) if it considers the delay justified.
(4) Where an objection is duly taken to the tribunals substantive jurisdiction and the tribunal has
power to rule on its own jurisdiction, it may

(a) rule on the matter in an award as to jurisdiction, or


(b) deal with the objection in its award on the merits.

If the parties agree which of these courses the tribunal should take, the tribunal shall proceed
accordingly.
(5) The tribunal may in any case, and shall if the parties so agree, stay proceedings whilst
anapplication is made to the court under section 32 (determination of preliminary point of
jurisdiction.
Section 31 is a mandatory provision. It is founded upon the basic principle that jurisdictional
challenges should be dealt with as quickly and efficiently as possible. It is intended to prevent
parties from keeping jurisdictional objections up their sleeve.21
By contrast, section 30 is not mandatoryit is possible for the parties to exclude altogether the
tribunals power to rule on jurisdiction. One possible construction of section 31 is that it is a
purely procedural provision, which applies only where the tribunals power to rule on jurisdiction
has not been excluded by agreement and where an application to rule on jurisdiction is made to the
tribunal. However, the DAC suggested that jurisdictional objections must always be raised with
the tribunaleven where the tribunals power to rule on the issue is excluded by agreement,22 and
(presumably) even where the parties agree to refer a jurisdictional issue to be determined by the
court pursuant to section 32 of the 1996 Act. Given the mandatory character of section 31 and
given, also, the provisions of section 73 (loss of the right to object),23 it will always be safer for a
party participating in the arbitration to raise any jurisdictional issue with the tribunal, even if the
tribunal has no power to rule on it.
Sections 31(1) and (2) reflect the general principle that objections (whether existing at the outset,
or arising during the arbitration) must be made promptly. An objection arising during the
proceedings must be raised as soon as possible; one arising at the outset of the proceedings must
be raised before the first step to contest the merits. There is no statutory definition of step.
Merely appointing an arbitrator, or correspondence about appointment and terms, will in most
cases not amount to a step but serving a defence without reserving the position on jurisdiction
would amount to one.24 The DAC expressed the view that the concept of a step was not limited
to service of a defence,25 and generally, a step for these purposes is analysed in a similar way to
a step for the purposes of section 9(3) of the Act. It is unclear whether applying for an extension
of time for the service of a defence would be a step, but unqualified communications with the
tribunal might do so unless they are concerned solely with administrative or preparatory matters.26
Accordingly, if a defendant makes any unqualified challenge to the merits of the underlying claim,
then he will generally lose the right to challenge the tribunals jurisdiction. However, it should be
possible to advance a jurisdictional challenge at the same time as advancing submissions on the
merits of the underlying claims, as long as it is made clear that the latter are without prejudice to
the former.27
The arbitrator is permitted to exercise some discretion in admitting objections out of time by
section 31(3), which provides that late objections may be admitted by the arbitral tribunal if it
considers the delay justified. This provision appears to confer on the tribunal an unfettered

jurisdiction to determine whether to admit late objections. Consequently, any challenge to such a
decision by an arbitrator will be very difficult. There is no statutory guidance as to the meaning of
justified, though deliberate or careless delays will rarely qualify.
The tribunals ruling on the jurisdictional issue must be contained in an award. Section 31(4) gives
the tribunal power to produce a separate preliminary award on jurisdiction, or to leave the
jurisdictional issue to be dealt with in the main award on the merits. The tribunal must comply
with any agreement by the parties as to which course of action it is to take,28 failing which the
tribunals decision in this regard must have regard to the mandatory duties under section 33 of the
Act to conduct the reference without unnecessary delay and expense. In many cases it will be
preferable to make a separate preliminary award, so that any application to court can be heard
before the parties incur costs in progressing the main dispute.

Challenging the tribunals ruling


The tribunals ruling is not finally binding: either party may challenge it as of right, by applying to
the court pursuant to section 67 of the 1996 Act which provides:
A party to arbitral proceedings may apply to court challenging any award of the arbitral
tribunal as to its substantive jurisdiction.
Where a tribunal rules solely on the validity or otherwise of the main contract, that ruling is not a
ruling on substantive jurisdiction for the purposes of section 67 and cannot be challenged
pursuant to that section.29
The application to court takes the form of a complete re-hearing. All the evidence relevant to the
jurisdictional issueincluding witness and expert evidencewill be re-heard by the court.
Because of the nature of the application (rehearing rather than review) the parties are not limited
to the evidence which was placed before the tribunal, and may rely on additional evidence in
relation to the section 67 challenge.
In Azov Shipping Co v Baltic Shipping Co,30 the defendant in the arbitration denied that it was a
party to the relevant contract and argued that the arbitration clause was not binding upon it. The
arbitrator ruled pursuant to section 30 that he did have jurisdiction. In order to make that ruling, he
heard expert evidence relating to foreign law in a three-day hearing. The defendant challenged the
ruling in court pursuant to section 67. Rix J held that the defendant was entitled to re-call all the
witnesses for the benefit of the court, noting that where a jurisdictional issue raised substantial
issues of fact, the court must not be placed in a worse position than the arbitrator for the purpose
of determining the challenge.
In Electrosteel Castings Ltd v Scan-Trans Shipping & Chartering,31 disputes arising in connection
with a booking note were referred to arbitration. The defendants challenged the tribunals
jurisdiction, denying that they had concluded any agreement incorporating an arbitration clause.
The arbitrator ruled that he did have jurisdiction to determine the disputes, and this ruling was
challenged pursuant to section 67. Gross J held that not only would the application take the form
of a re-hearing but the court was not limited to the evidence put before the arbitrator. The parties
could place before the court additional evidence, not considered by the tribunal. However, as
Gross J pointed out, nothing said here should encourage parties to seek two evidential bites of the

cherry in disputes as to the jurisdiction of arbitrators, not least because: (1) evidence introduced
late in the day may well attract a degree of scepticism; and (2) the court has ample power to
address such matters when dealing with questions of costs.
Although the challenging party may rely upon new evidence or arguments, it may not raise new
grounds of challenge which were not before the tribunal. In this regard, there may be a fine
distinction between new grounds of challenge (which may not be raised) and new arguments
(which may be raised if they fall within the grounds of challenge ruled upon by the tribunal).
In Primetrade AG v Ythan Ltd (The Ythan),32 the respondents challenged the jurisdiction of the
tribunal, arguing that they were not the lawful holders of bills of lading, nor had they made a
claim under the contract of carriage, for the purposes of the Carriage of Goods by Sea Act 1992
and therefore that they were not bound by the bill of lading arbitration clause. The tribunal
rejected these arguments, and concluded that it had the jurisdiction to determine the claims under
the relevant bills of lading. The respondents challenged this ruling pursuant to section 67 of the
1996 Act and sought to rely upon new arguments and evidence. The court held that the new
arguments fell within the existing grounds of challenge, and that the right to rely upon them had
not, therefore, been lost by virtue of section 73 of the 1996 Act. Aikens J commented that a party
which wished to rely upon new evidence must give notice of its intention and, if opposed, must
obtain the permission of the court to do so. Permission would be refused if admitting the new
evidence would cause substantial prejudice which could not fairly be addressed by costs or by an
adjournment. In the present case, the new evidence was admitted.
Under the CPR the court has wide-ranging powers to control evidence in appropriate cases and
could decide, in the interests of justice and efficiency, to determine factual issues on the basis of
written witness statements or affidavits only.33 However, such cases are rare.
Because of the potential waste of time and resources involved in challenges to the tribunals
rulings on jurisdiction, it may be worth considering referring the jurisdictional issue to the court in
the first instance (see below).

Ad hoc agreements
The parties may make an ad hoc agreement conferring jurisdiction upon the tribunal to make a
final and binding ruling on jurisdictional issues. In Republic of Kazhakstan v Istil Group
Inc,34 David Steel J described an ad hoc agreement as conferring enlarged jurisdiction to make a
final decision. Where such an agreement exists, although the right to challenge the tribunals
ruling is technically still available (because section 67 of the Act is mandatory), any challenge
under section 67 is bound to fail because of the parties agreement.
In LG Caltex Gas Co Ltd v National Petroleum Corporation,35 arbitral proceedings were
commenced under two related contracts and consolidated by agreement. In each reference, the
respondents challenged the tribunals jurisdiction, denying that they were party to any contract
with the claimant. Following correspondence between the parties as to the appropriate procedure
the arbitrator declined to determine the jurisdictional issue as a preliminary issue. Instead, the
parties proceeded to a hearing intended to deal both with jurisdiction and (without prejudice to the
respondents denial of jurisdiction) the merits. The arbitrator issued an award declaring that the

respondents were not party to the contracts. The claimant issued proceedings in the Commercial
Court pursuant to section 67 of the 1996 Act challenging the arbitrators decision. At first
instance, the judge held that the correspondence between the parties constituted an ad hoc
agreement conferring jurisdiction on the arbitrator finally to decide the jurisdictional issue, and
that no challenge was therefore possible. On appeal, the Court of Appeal confirmed that it remains
possible under the 1996 Act for the parties to confer on the tribunal jurisdiction to make a final
and binding award on jurisdiction. In such a case, any challenge under section 67 to the tribunals
ruling would fail. However, in the present case the correspondence was all consistent with an
exercise of power under section 30 of the Act and, therefore, no separate ad hoc agreement was
brought into existence.

6. COURTS POWER TO DETERMINE JURISDICTIONAL ISSUES


The court has power to determine jurisdictional issues in the following situations:

Under section 32, which entitles the court to make preliminary determinations of
jurisdictional issues in specified circumstances.
Under section 67, where an award is challenged on the basis of lack of substantive
jurisdiction.
Under section 9, where a party resists an application for a stay pursuant to section 9(4) (see
above and Chapter 7).
(In the case of non-participating parties) under section 72, by way of an application for
injunctive or declaratory relief.

Before the 1996 Act, it was possible to apply to court, before appointing an arbitrator, for a preemptive declaration affirming the existence of a binding arbitration agreement. This is no longer
an option. The proper course is to appoint an arbitrator first, then bring yourself within section 32
of the 1996 Act.36 However, this limitation of the courts power does not apply to the question of
whether pre-appointment requirements have been satisfied.37 Furthermore, the court has
recognised an inherent jurisdiction, in addition to its powers under section 32, to rule upon issues
of jurisdiction. It is likely that this inherent power will be exercised only rarely.38

Preliminary determination of jurisdictional issue under


section 32
Section 32 of the 1996 Act entitles the court to determine preliminary jurisdictional objections in
limited circumstances:

(2) An application under this section shall not be considered unless


o (a) it is made with the agreement in writing of all the other parties to the proceedings, or
o (b) it is made with the permission of the tribunal and the court is satisfied
(i) that the determination of the question is likely to produce substantial savings in
costs,
(ii) that the application was made without delay, and
(iii) that there is good reason why the matter should be decided by the court.

(3) An application under this section, unless made with the agreement of all the other parties
to the proceedings, shall state the grounds on which it is said that the matter should be
decided by the court.

Unless the parties have contracted out of the tribunals section 30 power to rule on jurisdictional
issues, the circumstances set out in section 32(2)(b) represent a derogation from the principle of
party choicefor this reason, there are strict criteria which must be complied with. The DAC
Report suggests that section 32 is intended for exceptional cases and that it is anticipated that
the courts will take care to prevent this exceptional provision from becoming the normal route for
challenging jurisdiction.39 In most cases the courts have, accordingly, adopted a restrictive
approach to section 32.
Nevertheless, some courts have suggested that a section 32 application may, in some cases,
represent the most efficient method of determining jurisdictional issues. Where the initial ruling
on jurisdictional challenges is made by the tribunal, that ruling may be challenged as of right in
court and the challenge takes the form of a complete rehearing of the evidence (see above). This
may obviously involve duplication of effort and costs, and it was for this reason that Rix J in
the Azov Shipping case suggested that in cases which raise substantial issues of fact, the
appropriate course may well be to proceed pursuant to section 32, either by agreement or by
obtaining the permission of the tribunal.40 Similarly, where it is clear that the tribunal does not
have the power to determine all the issues arising in relation to the question of jurisdiction, it may
be better to apply to the court under section 32.41
The court may not grant injunctive relief pursuant to section 32: the available remedy is a
declaration.42 The court does have an inherent jurisdiction to grant relief even if the requirements
of section 32 are not satisfied,43 but cases in which this will be appropriate are extremely rare.
Where the court determines a jurisdictional issue pursuant to section 32, its decision involves two
elementsa decision that the requirements of section 32 have been satisfied, and a decision on the
jurisdictional issue itself. Either decision can be appealed, but only with the leave of the first
instance courtthe Court of Appeal may not grant leave.44 Where leave is sought to appeal
against the first instance courts decision on the jurisdictional issue itself, such leave may be
granted only if the court considers that the question involves a point of law which is one of
general importance or is one which for some other special reason should be considered by the
Court of Appeal.

Post-award challenge under section 67


It is possible simply to ignore the arbitration, await the issue of the tribunals award, and then to
challenge that award on the basis that it was made without jurisdiction.
However, this strategy is possible under the 1996 Act only if the applicant has taken no part in the
arbitration: any participation without a party making a clear objection will result in the loss of the
right to object (see further below and see Chapter 11).

Non-participating parties

Parties who refuse to participate in the arbitration at all are in a different position. Such parties
retain the right to challenge the tribunals jurisdiction at any stage. Section 72 of the 1996 Act
provides:
(1) A person alleged to be a party to arbitral proceedings but who takes no part in the
proceedings may question

(a) whether there is a valid arbitration agreement,


(b) whether the tribunal is properly constituted, or
(c) what matters have been submitted to arbitration in accordance with the arbitration

agreement, by proceedings in the court for a declaration or injunction or other appropriate relief.
This was recognised as a vital provision by the DAC:
A person who disputes that an arbitral tribunal has jurisdiction cannot be required to take part in
the arbitration proceedings or to take positive steps to defend his position, for any such
requirement would beg the question whether or not his objection has any substance and thus be
likely to lead to gross injustice. Such a person must be entitled, if he wishes, simply to ignore the
arbitral process, though of course (if his objection is not well-founded) he runs the risk of an
enforceable award being made against him.45
Participating in the appointment process would amount to participation for these purposes,46 as
would taking part in the tribunals determination of the jurisdictional issue.47 In general, the courts
have held that correspondence with the tribunal will not cause a party to fall outside section
72,48 though any such correspondence should be carefully worded so as not to engage with the
merits of the jurisdictional issue or any substantive claim.
The relationship between sections 72 and 9 was considered by the Court of Appeal in Fiona
Trust v Privalov.49 In that case, charterparties were rescinded by Owners on the grounds of alleged
fraud and bribery. Owners then applied to court, pursuant to section 72, alleging that there was no
existing arbitration agreement, and seeking an injunction restraining the Charterers from
proceeding with arbitrations commenced pursuant to the charters. The charterers in turn applied
for a stay of the proceedings pursuant to section 9 of the 1996 Act. At first instance, Morison J
held that as a matter of construction, the allegations that the charters had been rescinded fell
outside the charterparty arbitration clauses; furthermore, the rescission of the charters had brought
the arbitration agreements to an end. He therefore granted the injunction, indicating that even if he
were wrong on the construction and rescission issues (so that the tribunal had jurisdiction to
determine the claims), he would have granted an injunction in any event because it was
convenient for the court to deal with the issues. This was set aside by the Court of Appeal, which
disagreed with Morison Js conclusions on construction and on the effect of the rescission. The
court also considered the relationship between sections 9 and 72, and how a court should proceed
where it is faced with opposing applications under these sections. It held that in such a case, the
stay application should be determined first. If there is an issue about the validity of the arbitration
agreement, then this might be determined by the court or by the tribunal, with the court staying its
proceedings pursuant to its inherent jurisdiction. Once the court has determined, pursuant to

section 9, that there is a valid arbitration agreement, then any right to apply pursuant to section 72
falls away. The two sections are mirror images of each other.
Note that, while the ECJs decision in West Tankers50 prevents the English court from granting an
anti-suit injunction restraining the pursuit of proceedings in the court of an EC Member State,
declaratory relief may nevertheless be available in such circumstances. This is so even though the
foreign court may have ruled upon the jurisdictional issue.51

7. ARBITRAL PROCEEDINGS PENDING CHALLENGES TO JURISDICTION


Both sections 31 and 32 of the 1996 Act contain provisions addressing the status of the
substantive arbitral proceedings pending a challenge to jurisdiction. Section 31(5) provides that:
The tribunal may in any case, and shall if the parties so agree, stay proceedings whilst an
application is made to the court under section 32 (determination of preliminary point of
jurisdiction).
The combination of sections 31(5) and 32(2)(b) means that if the tribunal approves a section 32
application and wishes to stay the arbitral proceedings in the meantime, a party may find itself
effectively disabled from pressing on with the arbitral proceedings until the court has determined
the jurisdictional issue. The other possibility is implicit in section 31(5), and is set out expressly in
section 32(4) which provides:
Unless otherwise agreed by the parties, the arbitral tribunal may continue the arbitral proceedings
and make an award while an application to the court under this section is pending.

8. LOSS OF THE RIGHT TO OBJECT


The available procedures for challenging jurisdiction are all subject to the principle, embodied in
section 73 of the 1996 Act, that delay in raising jurisdictional objections may result in the loss of
the right to object. Section 73, entitled Loss of the right to object, provides:
(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings
without making, either forthwith or within such time as is allowed by the arbitration agreement or
the tribunal or by any provision of this Part, any objection

(a) that the tribunal lacks substantive jurisdiction he may not raise that objection later,
before the tribunal or the court, unless he shows that, at the time he took part or continued to
take part in the proceedings, he did not know and could not with reasonable diligence have
discovered the grounds for the objection.

As the opening words make clear, this provision applies only to parties who participate in the
arbitral proceedingsincluding parties who participate for the sole purpose of challenging
jurisdiction (see Chapter 11). Taking part is not limited to active participation and includes
simply allowing the reference to proceed.
In Rustal Trading Ltd v Gill & Duffus Ltd,52 buyers under a sugar sale contract participated in a
Refined Sugar Association arbitration. Following submissions (in which the sellers sought to
undermine the buyers evidence by attacking their commercial representative), the buyers sought
to challenge the tribunal by alleging bias on the part of one of its members (this being a matter

which, in additional to jurisdictional challenges, falls within section 73). The court held that since
the buyers had continued to participate in the reference after the appointment of the arbitrator in
question, it was now precluded by section 73 from seeking to object.
Participating parties (unlike a non-participating party, who is described in the Act as a person
alleged to be a party to arbitral proceedings and whose position is protected by section 72) must
put up or shut up. Delaying tactics are no longer a realistic possibility under the 1996 Act. Any
challenge to jurisdiction must be formulated and put forward at the earliest possible stage if the
right to advance the challenge is not to be lost.
Section 32 (determination by the court of preliminary point of jurisdiction) expressly refers to
section 73. Section 31 (tribunals ruling on jurisdictional objection) does not expressly refer to
section 73 and, moreover, permits the tribunal to entertain late applications. However, the wording
of section 73 (in particular, the reference to applications to the tribunal), together with the
important policy which it embodies and the fact that it is a mandatory provision indicate that
section 73 applies to all jurisdictional challenges. Where the tribunal determines a jurisdictional
challenge, the relevant time limits, for the purposes of section 73, are those prescribed by section
31. Failure to comply with those limits will result in the loss of the right to object, unless the
tribunal extends time.
Rights to challenge will not be lost if it is shown by the challenging party that he did not know
and could not with reasonable diligence have discovered the grounds for the objection. The
question of what amounts to reasonable diligence will depend on the circumstances of the case,
but may require parties to take English or foreign law advice on time limits or other issues.53
A similar principle applies to challenges to the tribunals ruling on jurisdiction. Section 73(2)
provides that:
(2) Where the arbitral tribunal rules that it has substantive jurisdiction and a party to arbitral
proceedings who could have questioned that ruling

(a) by any available arbitral process of appeal or review, or


(b) by challenging the award,
does not do so, or does not do so within the time allowed by the arbitration agreement or any
provision of this Part, he may not object later to the tribunals substantive jurisdiction on any
ground which was the subject of that ruling.

Section 73(2) applies only to a tribunals ruling that it does have jurisdiction: it does not apply to
rulings that no jurisdiction exists.54 It is also clear that section 73(2) does not prevent any later
challenge on the basis of a ground upon which the tribunal did not rule in its original ruling:
however, challenges based on such grounds may well fall within the prohibitive provisions of
section 73(1).55 Note, however, that new arguments which fall within a ground of challenge which
was raised will not fall foul of section 73(1).56
1 Paragraph 297 of the DAC Report.
2 [1942] AC 356.

3 [1954] 1 QB 8, 12-13.
4 J. T. Mackley & Co Ltd v Gosport Marina Ltd [2002] EWHC 1315 (TCC); [2002] BLR 367.
5 The term substantive jurisdiction is defined under section 82(1) as referring to the matters
specified in section 30(1)(a) to (c). However, a tribunal may exceed its powers other than by
exceeding its substantive jurisdiction although the main statutory relief would be challenge under
section 68(2) of the 1996 Act, discussed in Chapter 22.
6 [2003] EWCA Civ 812; [2003] 2 Lloyds Rep 430.
7 See Premium Nafta Products Ltd v Fili Shipping Company Ltd [2007] UKHL 40; [2008] 1
Lloyds Rep 254.
8 Mustill & Boyd, Commercial Arbitration, 2nd edn, 2001 Companion, Butterworths 2001, pp
290-291.
9 Leif Hoegh & Co A/S v Petrolsea Inc [1992] 1 Lloyds Rep 45.
10 See International ArbitrationThree Salient Problems by Judge Schwebel of the ICJ (Grotius
Publications 1987).
11 Harbour Assurance Co Ltd v Kansa General International Insurance Co Ltd [1992] 1 Lloyds
Rep 81, Paul Smith Ltd v H&S International Holding Inc [1991] 2 Lloyds Rep 127.
12 The earlier (July 1995) version of the Bill contained an express provision clarifying that this
was the case in relation to assignments and transfers; however, the provision was considered too
unwieldy to include in the final version. See also the Denning Lecture 1995 (Arbitration and the
Courts) by Lord Justice Saville [1995] 61 Arbitration 157 at 161, and paragraph 44 of the DAC
Report.
13 [2007] EWCA Civ 20.
14 Fiona Trust & Holding Corp Ltd v Privalov (sub nom Premium Nafta Products Ltd (20th
Defendant) & Ors v Fili Shipping Company Ltd & Ors [2007] UKHL 40; [2008] 1 Lloyds Rep
254.
15 [1999] 1 Lloyds Rep 68.
16 Paragraph 138 of the DAC Report.
17 Challenging the tribunals ruling; page 82.
18 Birse Construction Ltd v St David Ltd [1999] BLR 194, Al-Naimi v Islamic Press Agency
Inc [2000] 1 Lloyds Rep 522, El Nasharty v J Sainsbury plc [2003] EWHC 2195; [2004] 1
Lloyds Rep 309, Patel v Patel [2000] QB 551.
19 Albon (t/a NA Carriage Co) v Naza Motor Trading SDN BHD & anr [2007] EWHC 665 (Ch);
[2007] 2 Lloyds Rep 1.
20 See Chapter 7.
21 Hussmann (Europe) Ltd v Al Ameen Development and Trade Co [2000] 2 Lloyds Rep 83.

22 Paragraph 145 of the DAC Report; see also the approach of Thomas J in Vale do Rio Doce
Navegacao SA v Shanghai Bao Steel Ocean Shipping Co Ltd [2000] 2 Lloyds Rep 1 at 11 and JT
Mackley v Gosport Marina (supra), although in that case the judge did, exceptionally, grant
declaratory relief as to the jurisdictional issue.
23 See below under Loss of the right to object.
24 Vee Networks Ltd v Econet Wireless International Ltd [2004] EWHC 2909 (Comm); [2005] 1
Lloyds Rep 192.
25 See paragraph 145 of the DAC Report.
26 Athletic Union of Constantinople (AEK) v National Basketball Association [2002] EWCA Civ
830; [2002] 1 Lloyds Rep 305.
27 See e.g., Patel v Patel [2000] QB 551; but cf, in the context of adjudication, R.C . Pillar &
Sons v The Camber [2007] EWHC 1626 (TCC).
28 Section 31(4)though presumably any such agreement would be effective only if consistent
with the tribunals mandatory duties under section 33see paragraph 145 of the DAC Report.
29 Vee Networks Ltd v Econet Wireless International Ltd [2004] EWHC 2909; [2005] Lloyds
Rep 192, Continental Enterprises Ltd v Shandong Zhucheng Foreign Trade Group Co [2005]
EWHC 92. Note, though, the possibility of an implied ruling on jurisdiction, recognised in Vee
Networks.
30 [1999] 1 Lloyds Rep 68. See also Astra SA Insurance & Reinsurance Co v Sphere Drake
Ltd [2000] 2 Lloyds Rep 550, in which the court was required to rehear detailed expert evidence
on Romanian law, Kalmneft v Glencore [2002] 1 Lloyds Rep 128, Electrosteel Castings
Ltd. v Scan-Trans Shipping & Chartering Sdn Bhd [2002] EWHC (Comm) 1993; [2003] 1
Lloyds Rep 190, Peoples Insurance Co of China v Vysanthi Shipping Co [2003] EWHC 1655
(Comm); [2003] 2 Lloyds Rep 617, Peterson Farms Inc v C&M Farming Ltd [2004] EWHC 121
(Comm); [2004] 1 Lloyds Rep 614; X Ltd v Y Ltd [2005] EWHC 769 (TCC); [2005] BLR 341.
31 [2002] EWHC 1993 (Comm); [2003] 1 Lloyds Rep 190.
32 [2005] EWHC 2399 (Comm); [2006] 1 Lloyds Rep 457.
33 See the discussion in Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyds Rep 552.
34 [2006] EWHC 448 (Comm); [2006] 2 Lloyds Rep 370.
35 [2001] 2 All ER (Comm) 97.
36 Vale do Rio Doce Navegacos SA v Shanghai Bao Steel Ocean Shipping Co Ltd [2000] 2
Lloyds Rep 1, Law Debenture Trust v Elektrim Finance BV [2005] EWHC 1412 (Ch); [2005] 2
Lloyds Rep 755, ABB Lummus Global Ltd v Keppel Fels Ltd [1999] 2 Lloyds Rep 24.
37 Holloway and anor v Chancery Mead Ltd [2007] EWHC 2495 (TCC); [2008] 1 All ER Comm
653.
38 J T Mackley & Co Ltd v Gosport Marina Ltd [2002] EWHC 1315 (TCC); [2002] BLR 367.

39 Paragraph 147.
40 See also the comments of Judge Humphrey Lloyd QC in Birse Construction Ltd v St David
Ltd [1999] BLR 194 and the CA in Al-Naimi v Islamic Press Inc [2000] 1 Lloyds Rep 522; see,
however, Colman J in AOOT Kalmneft v Glencore International AG [2002] 1 Lloyds Rep 128,
indicating that in some cases it may be preferable for the tribunal to rule upon jurisdiction at an
early stage, notwithstanding the availability of recourse as of right against such a ruling.
41 Esso Exploration and Production UK Ltd v Electricity Supply Board [2004] EWHC 787
(Comm); [2004] 1 All ER (Comm) 926.
42 Welex AG v Rosa Maritime Ltd [2003] EWCA Civ 938; [2003] 2 Lloyds Rep 509.
43 Mackley & Co Ltd v Gosport Marina Ltd [2002] EWHC 1315; [2002] BLR 367.
44 See sections 32(5) and (6); as to the meaning of the court in these provisions, see Henry Boot
(Construction) (UK) Ltd v Malmaison Hotel (Manchester) Ltd [2000] EWCA Civ 175; [2001] QB
388, Athletic Union of Constantinople vNational Basketball Association (No 2) [2002] 1 WLR
2863; [2002] EWCA Civ 830.
45 Paragraph 295 of the DAC Report.
46 Vale do Rio doce Navegacao, supra. However, default appointments made by the court under
section 18 of the Act would fall within section 72 (ibid).
47 Mustill & Boyd, 2001 Companion, p. 361, Caparo Group Ltd v Fagor Arrasate
Sociedad [2000] ADRLJ 254.
48 Caparo Group, The Law Debenture Trust Corporation v Elektrim Finance BV [2005] EWHC
1412; [2005] 2 Lloyds Rep 755.
49 Fiona Trust & Holding Corporation & Ors v Privalov & Ors [2007] EWCA Civ 20. This issue
was not addressed by the Lords.
50 Allianz SpA and Generali Assicurazioni Generali SpA v West Tankers Inc. (Case C-185-07)
[2009] WLR (D) 44.
51 National Navigation Co v Endesa Generacion SA [2009] EWHC 196 (Comm); [2009] 1
Lloyds Rep 666, discussed further in Chapter 8.
52 [2000] 1 Lloyds Rep 14.
53 See, e.g., Kalmneft JSC v Glencore International AG and another [2002] 1 All ER 76.
54 LG Caltex Gas Co Ltd v National Petroleum Corp [2001] 2 All ER (Comm) 97.
55 JSC Zestafoni G Nikoladze Ferroalloy Plant v Ronly Holdings Ltd [2004] EWHC 245
(Comm); [2004] 2 Lloyds Rep 335 and Westland Helicopters Ltd v Sheikh Al-Hejailan [2004]
EWHC 1625 (Comm); [2004] 2 Lloyds Rep 535.
56 Primetrade AG v Ythan Ltd (The Ythan) [2005] EWHC 2399 (Comm); [2006] 1 Lloyds
Rep 457.

Chapter 7

Stays of English Court Proceedings Brought in Breach of an


Agreement to Arbitrate
Stays of English Court Proceedings Brought in Breach of an Agreement to
Arbitrate

1. Introduction
2. Mandatory stays under section 9 of the 1996 Act
3. The inherent jurisdiction to grant a stay
4. Stays and jurisdictional issues
5. Practice

1. INTRODUCTION
The fact that parties have agreed to refer their disputes to arbitration does not mean that the
English court lacks jurisdiction to resolve those disputes1 or that a judgment given on that dispute
is unenforceable. However, such proceedings have been brought in breach of an arbitration
agreement and the court will be reluctant to exercise its jurisdiction over the dispute.2 The
defendant can either allow the proceedings in court to continue (and possibly claim damages for
breach of the arbitration agreement) or apply for a stay of the proceedings.
A stay, which is the legal term for a suspension or halt, is the most usual and effective remedy
since damages for breach of the arbitration agreement may be nominal unless a partys costs have
been increased by reason of the disputes having been referred to court rather than arbitration and a
court will not make an order requiring the parties to perform the arbitration agreement.3 The
practical effect of a stay of proceedings is to force the claimant to refer the dispute to arbitration
and the courts have firmly rejected any suggestion that this would contravene the claimants right
of access to court under Article 6 of the European Convention on Human Rights.4 The courts
jurisdiction to grant an injunction restraining a party from pursuing foreign proceedings in breach
of an arbitration agreement is discussed in the following chapter.
The courts primary jurisdiction to grant a stay arises by statute under section 9 of the 1996 Act.
The statutory jurisdiction is mandatory in that if an applicant for a stay can bring himself within
section 9, then the court is required to grant the stay; it has no discretion to decline to stay the
proceedings or to make the stay subject to conditions. The jurisdiction is also mandatory in the
sense that the parties to an arbitration agreement cannot contract out of it.5 The court retains an
inherent jurisdiction to stay proceedings but this would only be exercised in cases where there is
no statutory power.

2. MANDATO RY STAY S UNDER SECTION 9 OF THE 1996 ARBITRATION


ACT
Section 9 of the 1996 Act is intended to give effect to international obligations under the 1958
New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The
mandatory power to stay proceedings under section 9 applies to all written arbitration agreements

regardless of the nationality of the parties. Under the old law the courts had discretion to stay
arbitration agreements with no international element defined as domestic arbitration
agreements. The distinction between domestic and non-domestic arbitration agreements was not
brought into force in the 1996 Act because it was potentially contrary to the UKs obligation
under European Union (EU) law not to discriminate against an EU party on grounds of
nationality.6
Section 9 has removed the courts jurisdiction to grant summary judgment where a claim falls
within an arbitration clause but there is no arguable defence to it.7 Previously summary judgment
was often used as a speedy way of recovering indisputable claims for freight or demurrage or the
price of goods, notwithstanding the existence of an arbitration agreement. Now the parties must
arbitrate to recover such claims.
Section 10 of the 1996 Act also requires a stay of proceedings where one party brings interpleader
proceedings because he is faced by conflicting claims from other parties and does not know who
to account to. For example, a voyage charterer may be faced by competing claims for freight from
a shipowner and time charterer. If the issue between the competing claimants (e.g., the shipowner
and time charterer) is subject to an arbitration clause then the court will direct that the issue
between them is determined by arbitration unless there are reasons why the court would not have
granted a stay of proceedings brought by the competing claimants.

Requirements for a stay


Section 9 provides that:

(1) A party to an arbitration agreement against whom legal proceedings are brought (whether
by way of claim or counterclaim) in respect of a matter which under the agreement is to be
referred to arbitration may (upon notice to the other parties to the proceedings) apply to the
court to stay the proceedings so far as they concern that matter.
(2) An application may be made notwithstanding that the matter is to be referred to arbitration
only after the exhaustion of other dispute resolution procedures.
(3) An application may not be made by a person before taking the appropriate step (if any) to
acknowledge the legal proceedings against him or after he has taken any step in those
proceedings to answer the substantive claim.
(4) On an application under this section the court shall grant a stay unless satisfied that the
arbitration agreement is null and void, inoperative or incapable of being performed.
(5) If the court refuses to stay the legal proceedings, any provision that an award is a
condition precedent to the bringing of legal proceedings in respect of any matter is of no
effect in relation to those proceedings.8

In summary, the applicant under section 9 must establish that:

he is party to an arbitration agreement in writing (or a person claiming through or under such
a person); and
he is a party against whom legal proceedings are brought in respect of any matter agreed to be
referred to arbitration; and
he has not taken any step in those proceedings to answer the substantive claim.

If these three factors are established then the burden of proof 9 shifts to the party opposing the stay
application to show that:

the arbitration agreement is null and void, inoperative or incapable of being performed; or
there are other reasons precluding the grant of a stay (e.g., an estoppel).

Party to an arbitration agreement


Section 9 only applies to arbitration agreements in writing as defined by section 5 of the 1996 Act.
The statutory definition of an agreement in writing is extremely wide (see Chapter 4 above). For
example, it includes an agreement contained in an exchange of letters or telegrams and an oral
agreement incorporating written terms by reference, such as a salvage agreement made orally on a
ships radio incorporating the terms of the Lloyds Open Form.10
In Zambia Steel & Building Supplies Ltd v James Clark & Eaton Ltd,11 there had been a written
quotation containing an arbitration agreement. A contract in the terms of the quotation was
subsequently agreed orally. The Court of Appeal held that the contract was partly written and
partly oral. The requirement for an agreement in writing was satisfied if there was a document
which recognised the existence of an agreement to arbitrate or which contained the agreed terms
even if one of the parties only assented orally to the contract. There was no requirement that the
arbitration agreement be signed.
The court may also have to consider jurisdictional questions as to whether the contract sued upon
in the legal proceedings actually contains an arbitration clause. For example, in cargo disputes the
court will often have to construe a charterparty and bill of lading to decide whether an arbitration
clause in a charter has been incorporated into the bill of lading.12 The correct approach to such
jurisdictional issues is considered below and in Chapter 6.
Under section 82(2) of the 1996 Act a party to an arbitration agreement is defined as including any
person claiming under or through a party to the agreement. The issue of whether an applicant
for a stay is a party to the arbitration agreement, or claiming under or through a party, has
generally been given a wide, purposive treatment by the courts. The assignee of a debt arising out
of a contract containing an arbitration clause13 and a party claiming under the Third Parties
(Rights against Insurers) Act14 have been held (in pre-1996 Act cases) to fall within this category.
However, a legal or commercial connection to the party to the arbitration agreement will not be
sufficient.15

Party against whom legal proceedings are brought in


respect of any matter agreed to be referred to arbitration
A stay is only available to a party against whom civil proceedings in the High Court or county
court have been commenced.16 It may be granted in respect of proceedings brought by claim or
counterclaim, including third-party contribution proceedings.17 It is probably not available to
someone who has applied to be made a party to the proceedings because section 9 is only intended
to benefit those who have been sued in relation to a matter agreed to be arbitrated.18 Section 9(2)
makes clear that a party can apply for a stay even where the dispute has not yet reached the stage

when it can be referred to arbitration because the parties have agreed to use other dispute
resolution procedures first (e.g., expert determination or mediation).19
The question of whether the proceedings are brought in respect of a matter agreed to be arbitrated
raises jurisdictional issues as to the existence and the scope of the arbitration clause. This type of
issue is discussed in Chapter 6, but the question of whether the court or the tribunal will resolve
such an issue is considered below.

A dispute to be referred to arbitration


Arbitration clauses often provide for disputes or differences arising out of the contract to be
referred to arbitration. (For the purposes of the 1996 Act a dispute includes any difference.20) The
term dispute is to be given its normal meaning and is not defined legalistically. Whether a dispute
has arisen will depend on the particular circumstances but generally while the mere making of a
claim does not amount to a dispute, a dispute will be held to exist once it can readily be inferred
that a claim is not admitted.21
Before the 1996 Act came into force it was generally accepted22 that if there was no arguable
defence to a claim, or the claim was indisputably due then there was no dispute referable to
arbitration. However, the 1996 Act excluded the provision in the 1975 Act precluding a stay
where there is not in fact any dispute between the parties with regard to the matter to be
referred. The Court of Appeal in The Halki 23 decided that the removal of these words meant that
a court could no longer refuse a stay on the ground that the claim is indisputable or there is no
arguable defence to it.
In The Halki the claimants entered a tanker voyage charter containing a clause referring any
disputes arising from the charter to London arbitration. The claimants commenced proceedings to
claim demurrage. The defendants issued an application for a stay under section 9 which the
claimants countered by claiming summary judgment for demurrage which they said was
indisputably due. The defendants did not admit the sum was due but raised no real answer to it.
The defendants contended that there was a dispute between the parties within the meaning of the
arbitration clause because they did not admit that they were liable for the demurrage. The
claimants said there was no dispute because the claim was indisputably due in that the defendants
had no arguable defence to it. Clarke J and the Court of Appeal decided that there was a dispute
within the meaning of the clause and that the entire claim should be stayed.
The fact that a stay is now clearly available in respect of a claim which is indisputably due means
that a defendant can obtain a stay in circumstances where a claimant might previously have
obtained summary judgment. This change was justified since arbitrators can proceed speedily to
determine a very strong case by making an award at an early stage on certain issues. Giving
summary judgment for a claim within the scope of an arbitration clause would also be inconsistent
with the principle of respecting the parties choice of arbitration to resolve disputes.24
The practical result is that summary judgment is no longer available for a straightforward claim
which the other side has refused to pay. In addition, even where a party has admitted a claim, the
court is likely to grant a stay of proceedings in favour of arbitration if that party refuses to pay the

claim. There had been varying dicta on this point,25 but the Commercial Court has now taken a
robust approach and indicated that a stay should be granted in such circumstances.
In Exfin Shipping (India) Ltd v Tolani Shipping Co Ltd 26 charterers under a voyage charter
containing a standard arbitration clause admitted that a sum was due for demurrage but refused to
pay. Owners commenced arbitration and obtained an award. Charterers sought to set it aside for
want of jurisdiction. Langley J decided that failure to make a payment admittedly due constituted
a dispute referable to arbitration. He considered that any other conclusion would found a debtors
charter.

No step taken in the proceedings to answer the


substantive claim
An application for a stay may not be made after the applicant has taken any step in the
proceedings to answer the substantive claim. This wording has been interpreted in a similar way
to the previous provision in section 1 of the 1975 Act.27 The wording of section 9 is directed
towards steps taken to defend the claim on the merits. Whether an act amounts to a step in the
proceedings to answer the claim will depend on all the circumstances: the courts will make an
objective assessment of whether a party has impliedly affirmed the proceedings and indicated a
willingness to defend the claim rather than merely maintaining the status quo pending the issue of
an application for a stay. The Court of Appeal has endorsed the following tests:
It seems to me that in order to deprive a defendant of his recourse to arbitration a step in the
proceedings must be one which impliedly affirms the correctness of the proceedings and the
willingness of the defendant to go along with a determination by the courts of law instead of
arbitration.28
Two requirements must be satisfied. First, the conduct of the applicant must be such as to
demonstrate an election to abandon his right to stay, in favour of allowing the action to proceed.
Second, the act in question must have the effect of invoking the jurisdiction of the court.29
A step in the proceedings would probably not include purely procedural steps designed to
maintain the status quo, for example, an application for an extension of time for serving a
defence30 or an application to set aside service of proceedings or the arrest of a ship. Similarly, an
agreement to put up security to release a ship under arrest would probably not count as a step in
the proceedings. Service of statements of case or witness statements resisting summary judgment
would probably, however, count as relevant steps.31 A step in the proceedings does not have to be
a positive application; merely serving a witness statement in opposition to an application for
summary judgment indicates a willingness for the court to decide the merits and would preclude
the grant of a stay unless a stay application is issued at the same time.32 However, an act which
would otherwise be treated as a step in the proceedings will not be treated as such if the applicant
has specifically stated that he intends to seek a stay.33 Although the legal test is well established,
the authorities themselves do not present a consistent pattern so the safest course is probably to
issue a stay application and make clear that any other subsequent or simultaneous step is taken
subject to that application.

In Capital Trust Investments Ltd v Radio Design TJ 34 the defendant issued an application for a
stay and, shortly before the hearing, issued a further application notice stating that, in the event
that its application for a stay was unsuccessful, it applied for summary judgment. The Court of
Appeal held that this did not amount to a step in the proceedings since it expressed no willingness
to have a court determination of the merits. The defendant had made clear that the application was
only advanced if the stay application failed.
In Patel v Patel 35 the claimant had obtained default judgment and the defendant applied to set
aside the judgment and sought leave to defend the actions. Subsequently he served affidavits
dealing with the merits of the claim and also asking the court for a stay. Referring to the spirit of
the 1996 Act, Lord Woolf MR decided that the primary relief sought was for an order setting aside
the default judgment. The defendants further application for leave to defend the action was
otiose to the relief he needed and accordingly did not amount to a step in the proceedings to
answer the substantive claim. This case suggests that the courts may lean towards granting a stay
where possible.
In Skopos Design v Homelife Nursing Times 36 the Court of Appeal held that ticking a box to
apply for a transfer of the action to another district registry was not sufficient to amount to a step
in the proceedings.
In Blue Flame Mechanical Services v David Lord Engineering 37 applying for an adjournment of a
summary judgment application was not treated as a step amounting to an election to litigate.
Once a party has taken a relevant step in the proceedings then he will generally have lost the right
to a stay unless distinctly separate matters are subsequently raised which are also subject to the
arbitration agreement.
In Ahad v Uddin 38 the claimants had commenced court proceedings in respect of matters that fell
within an arbitration clause. The defendant took a step in the proceedings by serving a defence but
when the claimants applied to amend their claim he applied for a stay of proceedings insofar as
they related to the amendments. The Court of Appeal refused a stay since the amended matters
were part and parcel of the dispute raised in the original proceedings, in which the defendant
had already taken steps to preclude the grant of a stay.

Arbitration agreement null, void, inoperative or


incapable of being performed
These words follow the New York Convention and were found in the old law (and also the Model
Law). The words null and void should be construed narrowly and mean devoid of legal effect:
they probably assume that an arbitration agreement has been concluded but that it is not legally
binding.39 For example, they would cover situations where the agreement is not valid by reason of
illegality or public policy or where it has been avoided on the basis of duress, mistake, fraud or
misrepresentation. In exceptional cases an arbitration clause might be held to fail for
uncertainty.40 It is unlikely that these words cover a situation where an arbitration agreement has
never been concluded.41

The word inoperative has also been interpreted restrictively and is intended to cover situations
where the arbitration clause has ceased to have legal effect (e.g., by reason of an accepted
repudiation). Where an arbitration agreement exists and one party commences proceedings this
could in itself amount to a repudiatory breach of the arbitration agreement or an acceptance of the
other partys repudiatory breach. Whether such conduct amounts to a repudiatory breach (or
acceptance thereof) will depend on the circumstances and the parties pre-commencement
communications.
In Downing v Al Tameer Establishment 42 an inventor of a process for separating crude oil entered
into a joint venture agreement which included an arbitration clause. When disputes arose he
sought to refer the matter to arbitration but the defendants repeatedly denied that they had any
contractual relationship with him. He then started proceedings and the defendants applied for a
stay. The Court of Appeal refused a stay on grounds that the arbitration agreement was
inoperative. The defendants denial of any contract amounted to a repudiation not only of the main
contract but also the arbitration agreement. By commencing proceedings the claimant had
unequivocally accepted the repudiation.
An agreement is incapable of being performed if it can no longer be performed even if both
parties were ready, willing and able to perform (e.g., if the chosen tribunal has refused to accept
jurisdiction).43 This term probably covers cases where the arbitration clause has been frustrated
(although it may also be regarded as inoperative in such circumstances).44 It has been held that an
arbitration agreement is not inoperative or incapable of being performed simply because any claim
referred to arbitration will be time-barred,45 or one party lacks the means to arbitrate.46
In Janos Paczy v Haendler & Natermann GmbH 47 an inventor granted a licence incorporating an
ICC arbitration clause and commenced proceedings against the defendant. The Court of Appeal
held that the fact the claimant was financially unable to commence an ICC arbitration did not
mean that the arbitration agreement was incapable of being performed. This provision could
only apply where both parties were incapable of arbitrating.

Other reasons precluding a stay


Although the jurisdiction to grant a stay is mandatory the court retains power to refuse a stay
where equity and fairness would require it. A commonly invoked ground arises where a party, by
unequivocal representations or conduct, has waived its right to apply for a stay or is subject to an
estoppel precluding the right to arbitrate. It might be said that the arbitration agreement was no
longer operative in such circumstances or that there has been a variation of the arbitration
agreement (or one party is precluded from denying such variation).
In The Leila 48 Mustill J held that a defendant was estopped from relying on an arbitration clause
in a bill of lading because the parties conduct in discussing an extension for time for commencing
proceedings had given rise to an estoppel by convention rendering it unconscionable for the
defendant then to insist on arbitration.
If the dispute is not properly arbitrable,49 the court may also refuse a stay of proceedings.
In Exeter City AFC Ltd v Football Conference Ltd 50 the claimant football club was a member of a
football league organised by the respondent, such membership being subject to an arbitration

agreement. The claimant fell into financial difficulties and entered into a creditors voluntary
arrangement (CVA). The respondents policy was to expel members who entered into CVAs
unless certain creditors were given priority, but the Inland Revenue would not allow such priority
treatment. The claimant responded to the situation by issuing a section 459 petition under the
Companies Act 1985 alleging that the respondents affairs were being conducted in an unfairly
prejudicial way. The respondent applied for a stay. The judge appeared to find that the dispute was
within the scope of the arbitration clause, but that the statutory right to apply for section 459 relief
could not be excluded by contract. It was common ground that section 9 did not apply to disputes
that were not susceptible to arbitration and the judged decided as a matter of discretion to refuse a
stay. An alternative analysis might have been that the arbitration clause was not operative in
relation to such a dispute.

3. THE INHERENT JURISDICTION TO GRANT A STAY


The High Court has inherent powers at common law to stay English proceedings wrongly brought
in breach of contract. This jurisdiction does not depend on statute51 and has been justified by
reference to the principle that the court will require people to abide by their contracts,52 and also
by reference to the interests of the orderly regulation of international commerce.53 The 1996 Act
provides at section 1(3) that in matters governed by this Part the court should not intervene
except as provided by this Part. This means that the inherent jurisdiction to stay proceedings will
survive as a residual power, only available where there is a gap in the statutory jurisdiction. It
would apply, for example, where there is an agreement for a dispute resolution procedure other
than arbitration54 or an oral agreement to arbitrate not covered by the 1996 Act.55 It could also
apply where the dispute in the court proceedings is not caught by section 9, but it would still be
preferable for the dispute to be decided by arbitration.56 The Court of Appeal in AlNaimi v Islamic Press Agency Inc 57 suggested that the courts inherent jurisdiction to stay
proceedings could be used where an issue as to the scope of the arbitration agreement arises on an
application under section 9 but the court decides that it would be preferable for the arbitrator to
consider the whole matter first.

4. STAY S AND JURISDICTIONAL ISSUES


Probably the most common issue on a stay application is the existence or scope of the arbitration
agreement relied upon in seeking the stay. The courts jurisdiction to grant a stay under section 9
of the 1996 Act depends on the court being satisfied that there is a concluded arbitration
agreement and that the relevant dispute is within its scope.58 The court clearly has power to
determine jurisdictional issues arising on a stay application. CPR Part 62 addresses the issue by
providing at rule 62.8(3) that:
Where a question arises as to whether an arbitration agreement has been concluded; or the
dispute which is the subject-matter of the proceedings falls within the terms of such an agreement,
the court may decide that question or give directions to enable it to be decided and may order the
proceedings to be stayed pending its decision.
Two important aspects of the 1996 Act must, however, be taken into account. First, the courts
discretion to decide the jurisdictional issue only arises if there is truly a question whether there is a
valid arbitration agreement (or an issue as to whether the dispute was covered). The doctrine of

separability (considered in Chapter 6) means that where allegations go to the validity of the main
contract as opposed to the arbitration agreement then the issue must be decided by the tribunal.
In Premium Nafta Products Limited v Fili Shipping Company Limited,59 shipowners claimed that
several charters including an arbitration clause had been induced by bribery of their employees by
charterers representatives. They commenced claims in court for rescission of the charters and
conspiracy. Charterers applied for a stay of proceedings and the House of Lords upheld a stay of
the proceedings under section 9 of the 1996 Act. It decided that the claims for rescission on
grounds of bribery were within the scope of the arbitration clause and would be investigated by
the tribunal. The bribery allegations went to the main contract but did not impeach the arbitration
clause and a stay should be granted.
Secondly, the policy of the 1996 Act is firmly in favour of the doctrine of kompetenzkompetenz (i.e., that the tribunal is competent to rule on its own jurisdiction) and section 30
confers power on the tribunal to determine jurisdictional issues such as whether an arbitration
agreement has been concluded. There is accordingly tension between the courts power to
determine jurisdictional issues in this context and the Acts express provision for the tribunal to
decide such issues. Guidelines laid down in Al-Naimi v Islamic Press Agency 60 remain the
primary authority. These guidelines are to the effect that on an application for a stay where the
existence of the arbitration agreement is in issue, the following options are open to the court:

(1) to decide the issue on the available statement evidence where this is possible, (normally if
the parties agree); and accordingly either grant or refuse a stay;
(2) to give directions for the trial by the court of the issue (and following trial grant or refuse
a stay);
(3) to stay the proceedings under the courts inherent jurisdiction on the basis that the
arbitrator will decide the issue (with the possibility that the arbitrators decision will be
reviewed by the court under section 67 and the section 9 stay application will be
reconsidered).

The correct approach will depend on the particular circumstances of the application. The court
should bear in mind that it must not deprive the party of the benefit of an agreement that disputes
should be referred to arbitration. However, section 30 is not mandatory and the 1996 Act does not
require a party who objects that there is no arbitration agreement to have that question decided by
an arbitral tribunal; any such requirement would beg the question as to whether or not the
objection is well-founded.61 As a general principle a party has a right of access to court unless it is
clearly proven that he has waived that right: to require him to go first to the arbitral tribunal to
obtain a jurisdictional ruling would infringe that right.62 Practical considerations are of equal
importance and the avoidance of unnecessary delay or expense is probably the dominant factor to
be taken into account in deciding whether a jurisdictional issue should be decided in court or in
arbitration. The court is entitled to take into account whether the court proceedings preceded the
commencement of the arbitration and whether the decision of the arbitrators would be subject to
review by a court.63 The court should also take into account the potential danger of two hearings
on the same jurisdictional issue, first before the tribunal and then before the court under sections

67 or 69 of the 1996 Act. The risk of having to come back to court in any event will mean that
ordinarily it will be most convenient for the court to decide the issue.
In Al-Naimi v Islamic Press Agency Inc 64 the claimant was a building contractor who carried out
works on the defendants building pursuant to a written contract containing an arbitration
agreement. The claimant commenced proceedings in respect of further works not identified in the
written contract claiming that they were carried out under a separate oral contract. It was likely
that the claimant issued proceedings in court because he could not obtain legal aid to conduct an
arbitration. The defendant claimed a stay relying on the arbitration clause. The judge at first
instance decided that the issue as to whether the further works were carried out under the written
contract or a separate oral contract should be decided in the arbitration. The Court of Appeal
allowed the appeal, decided the jurisdictional issue and granted a stay under section 9.
The trend of authorities65 now clearly suggests that the courts have not fully embraced the
principle of kompetenz-kompetenz in this context; it would only be an exceptional case where the
court would exercise its inherent jurisdiction to stay the proceedings so as to enable the tribunal to
decide the jurisdictional issue. Such a case would typically arise where it is virtually certain that
the arbitration agreement exists or there were overwhelming considerations of convenience and
cost.66
A v B 67 is an example of an exceptional case where the courts inherent jurisdiction might be
exercised. Colman J suggested that he would have granted a stay of English proceedings allegedly
pursued in breach of an agreement to arbitrate in Switzerland where there were opposing
allegations that the arbitration agreement was induced by fraud. It was relevant that the tribunal
was already investigating its own jurisdiction and that Swiss law very clearly gave the arbitrator
power to rule on its jurisdiction. There was a serious risk of conflicting decisions and Switzerland
was the appropriate place for judicial supervision.
It would probably be appropriate to leave the issue to the arbitrators where they clearly have
jurisdiction over some matters but there is a dispute as to others, especially where the
jurisdictional issue is closely linked to the substantive issues between the parties. If the judge does
decide that it would be better for the arbitrator to consider the jurisdictional issue then a stay under
section 9 cannot be ordered since the court has not decided that the proceedings are covered by an
arbitration agreement. The stay can only be granted pursuant to the courts inherent jurisdiction.68
If the court decides to resolve the jurisdictional issue then CPR rule 62.8(3) gives it wide
discretion as to whether the matter should be decided immediately or following a trial. Birse
Construction Ltd v St David Ltd 69 suggests, however, that if there is a triable issue as to the
existence or scope of the arbitration agreement then the judge should not decide the issue on
statement evidence unless the parties agree to this. On the other hand, where the parties agree that
the jurisdictional issue can be decided on the basis of statements without need for a trial then in
the interests of good litigation management and the saving of costs the judge should endeavour
to do so unless he considers oral evidence is necessary.70

5. PRACTICE
The application for a stay is begun by issuing an application notice in the court in which the legal
proceedings are pending.71 The application must ordinarily be issued within the period allowed for

serving a defence (usually 28 days from the service of the particulars of claim) otherwise the
defendant risks judgment being entered against him. The applicant must file an acknowledgment
of service of the claim form before issuing the application.72 Evidence referring to the existence of
the arbitration agreement and the dispute thereunder should be served with the application. Notice
of the application should be given to all the parties to the proceedings and this is done by making
them defendants to the application and serving them with the application and evidence in
support.73 The court may grant a stay of those parts of the proceedings that concern the matter
agreed to be referred to arbitration and this may require a difficult delineation of the subject matter
of the proceedings.74 The costs of the application for a stay will normally be granted to the
successful party. If a party can establish that court proceedings were commenced in breach of an
arbitration agreement then it can probably justify asking for indemnity costs, effectively to give
full compensation for the breach. In A v B 75 Colman J stated that:
In my judgment, provided that it can be established by a successful application for a stay or an
anti-suit injunction as a remedy for breach of an arbitration or jurisdiction clause that the breach
has caused the innocent party reasonably to incur legal costs, those costs should normally be
recoverable on an indemnity basis.

Stays and obtaining permission to serve out of the


jurisdiction
The existence of an arbitration agreement does not itself bar the court from granting permission to
serve a claim form out of the jurisdiction where the claim falls within the scope of that agreement.
However, if the defendant would be entitled as a matter of right to a stay and has made it plain that
he will assert that right, the court will not ordinarily grant permission to serve out of the
jurisdiction because service out would be an empty formality rendered futile when a stay is
obtained.76 It is important to note that an application by a foreign party for a stay of proceedings
under section 9 would probably not amount to a voluntary submission to the English jurisdiction.77

Security for a claim


A stay under section 9 of the 1996 Act cannot be made subject to conditions since the statute
provides no express power to make such conditions and the court would have no power to set
aside a mandatory stay as a sanction if conditions were not complied with.78 If, however, a party
has issued proceedings to arrest a vessel the court may grant a stay of these proceedings but order
that the arrest be maintained as security for an award under section 26 of the Civil Jurisdiction and
Judgments Act 1982.79 The court probably has power under section 44 of the 1996 Act to allow a
freezing order to remain in force to preserve assets where court proceedings are stayed under
section 9 of the 1996 Act.

Appeals
There is a right of appeal from a first instance decision under section 9 or the courts inherent
jurisdiction. Such an appeal can only be made with the permission of the Court of Appeal or the
first instance court.80 This is not clear from the 1996 Act which makes no provision for appeal
from decisions under section 9. On its literal meaning this provision, taken together with the

provisions on appeals under the Supreme Court Act 1981, could be read as excluding any right of
appeal. However, the House of Lords in Inco Europe Ltd v First Choice Distribution 81 resolved
the point by deciding that there had been a drafting error in the legislation and that it should be
read so as to not to remove the Court of Appeals jurisdiction.
1 However, if there is a Scott v Avery clause, the absence of an arbitration award will provide a
defence to the claim and postpone the courts jurisdiction. Scott v Avery clauses are discussed in
Chapter 4.
2 For example in refusing permission to serve proceedings out of the jurisdiction see A & B v C,
D, E, F, G, & H [1982] 1 Lloyds Rep 166.
3 This is an order for specific performance, see Doleman v Ossett Corporation [1912] 3 KB 257
at 270 per Fletcher Moulton LJ. An injunction to restrain a party from pursuing English
proceedings would be unavailable because a stay is the appropriate remedy, but an injunction
would be available to restrain a party pursuing foreign court proceedings outside EU or Lugano
Convention states: see Chapter 8.
4 Premium Nafta Products Limited v Fili Shipping Company Limited [2007] UKHL 40; [2008] 1
Lloyds Rep 254, El Nasharty v J Sainsbury plc [2007] EWHC 2618; [2008] 1 Lloyds Rep 360.
5 See section 4 of the 1996 Act and Schedule 1, the jurisdiction cannot be avoided by choice of a
foreign seat of the arbitration: see section 2(2).
6 See Arbitration Act 1996 (Commencement No 1) Order 1996 which prevented sections 85 to 87
from coming into force, paragraphs 317 to 331 of the DAC report and paragraphs 47 to 49 of the
DACs Supplementary Report on the Arbitration Act. See also Philip Alexander Securities and
Futures Limited v Bamberger [1997] I L Pr 73, CCH; [1996] CLC 1757 (CA).
7 Halki Shipping Corporation v Sopex Oils Ltd, The Halki [1998] 1 Lloyds Rep 465.
8 This provision is designed to deal with contracts involving Scott v Avery clauses. The DAC
suggested at paragraph 57 of their report that this avoids a situation where the arbitration clause
is unworkable, yet no legal proceedings can successfully be brought.
9 Overseas Union Insurance Ltd v AA Mutual International Insurance Co Ltd [1988] 2 Lloyds
Rep 63 at 70. It is suggested that a comment by Potter LJ in Downing v Al Tameer
Establishment [2002] EWCA Civ 721; [2002] 2 All ER (Com) 545, para 20, suggesting that a stay
should be granted if the defendant can raise an arguable case in favour of validity, was intended as
a reference to this case rather than a new interpretation on the burden of proof.
10 DAC Report, paragraph 36.
11 [1986] 2 Lloyds Rep 225, see also Excomm Ltd v Ahmed Abdul- Qawi Bamaodah, The Saint
Raphael [1985] 1 Lloyds Rep 403 and Aughton v MF Kent Services [1991] 31 Con LR 60.
12 For example Daval Aciers DUsinor et de Sacilor v Armare Srl, The Nerano [1996] 1 Lloyds
Rep 7 and The Delos [2001] 1 All ER Comm 763, see Chapter 4 above.
13 Rumput (Panama) SA v Islamic Republic of Iran Shipping Lines, The Leage [1984] 2 Lloyds
Rep 259.

14 Socony Mobil Oil Co Inc v West of England Ship Owners Mutual Insurance Association
(London) Ltd, The Padre Island [1984] 2 Lloyds Rep 408.
15 In Roussel-Uclaf v GD Searle & Co [1978] 1 Lloyds Rep 225, a wholly owned subsidiary,
selling goods on behalf of its parent company which was party to the arbitration agreement, was
granted a stay. In Mayor of the City of London vSancheti [2008] EWCA Civ 1283, [2009] 1
Lloyds Rep 117, Collins LJ considered that the decision was wrongly decided in relation to the
statutory jurisdiction. It was also distinguished in Grupo Torras SA v Al-Sabah [1995] 1 Lloyds
Rep 374 at 451.
16 Section 82(1) of the 1996 Act.
17 Wealands v CLC Contractors Ltd [1999] 2 Lloyds Rep 739.
18 Etri Fans Ltd v NMB (UK) Ltd [1987] 2 Lloyds Rep 565.
19 This provision reflects the views of Lord Mustill in Channel Tunnel v Balfour Beatty [1993] 1
AC 334 at 352, DAC Report, paragraph 52.
20 See section 82(1) of the 1996 Act.
21 Collins (Contractors) Ltd v Baltic Quay Management (1994) Ltd [2004] EWCA Civ 1757;
[2005] BLR 63, para 63 referred to in AMEC Civil Engineering Ltd v Secretary of State for
Transport [2005] EWCA Civ 291; [2005] 1 WLR 2339. See below as to whether an admitted
claim can give rise to a dispute for the purposes of section 9.
22 For example, Hayter v Nelson & Home Insurance Co [1990] 2 Lloyds Rep 265
and Hume v AA Mutual International Insurance [1996] Lloyds Rep IR 19.
23 Halki Shipping Corporation v Sopex Oils Ltd, The Halki [1998] 1 Lloyds Rep 465.
24 The Merak [1964] 2 Lloyds Rep 283 at 295, Grimaldi Compagnia Di Navagazione
SpA v Sekihyo Lines Ltd, The Seki Rolette [1998] 2 Lloyds Rep 638.
25 In The Halki [1998] 1 Lloyds Rep 464 there were obiter suggestions that there was a dispute
until the defendant admits the sum claimed is due and payable, see Swinton-Thomas at 487 and
Henry LJ at 482. Mance LJ affirmed this approach in Wealands v CLC Contractors Ltd [1999] 2
Lloyds Rep 739 at 745. See also Ellerine Brothers (Pty) Ltd v Klinger [1982] 1 WLR 1375 at
1381, 1383 (Templeman LJ) and The M Eregli, Tradex Internacional SA v Cerrahogullari
TAS[1981] 2 Lloyds Rep 169 at 173. On the other hand, Clarke LJ in Glencore Grain Ltd v Agros
Trading Co [1999] 2 Lloyds Rep 410 at 422 considered that an admission would not supercede a
dispute, following his comments at first instance in The Halki [1998] 1 Lloyds Rep 49 at 55, see
his comments at paragraph 63 of Collins (Contractors) Ltd v Baltic Quay Management (1994) Ltd
[2004] EWCA Civ 1757; [2005] BLR 63. See also AMEC Civil Engineering Ltd vSecretary of
State for Transport [2005] EWCA Civ. 291; [2005] 1 WLR 2339 for discussion of the meaning of
dispute in a different context.
26 [2006] EWHC 1090 (Comm); [2006] 2 Lloyds Rep 389.
27 In Patel v Patel [1999] 3 WLR 322, Lord Woolf MR suggested that the approach adopted
in Pitchers Ltd v Plaza (Queensbury) Ltd [1940] 1 All ER 151 would apply under the new law.

Ward and Otton LJJ also appeared to accept that the old authorities would apply. See also Capital
Trust Investment Ltd v Radio Design TJ AB [2002] EWCA Civ 135; [2002] 2 All ER 159, para 57.
28 Eagle Star Insurance Co Ltd v Yuval Insurance Co Ltd [1978] 1 Lloyds Rep 357 at 361 (Lord
Denning MR), applied in Capital Trust Investment Ltd v Radio Design TJ AB [2002] EWCA Civ
135; [2002] 2 All ER 150, para 23.
29 Patel v Patel [2000] QB 551 at 555, Capital Trust Investment Ltd v Radio Design TJ
AB [2002] EWCA Civ 135; [2002] 2 All ER 150, para 23.
30 Lawson v Midland Travellers [1993] 1 WLR 735 suggests that such an application would not
amount to a submission to the jurisdiction of the court but see Fords Hotel Co
Ltd v Bartlett [1896] AC 1 and London Sack v Dixon & Lugton[1943] 2 All ER 763.
31 Turner & Goudy v McConnell [1985] 1 WLR 898, but see Patel v Patel [2000] QB 551.
32 Pitchers Ltd v Plaza (Queensbury) Ltd [1940] 1 All ER 151.
33 Patel v Patel [2000] QB 551 at 558 and Capital Trust Investments Ltd v Radio Design
TJ [2002] EWCA Civ 135; [2002] 2 All ER 159.
34 [2002] EWCA Civ 135; [2002] 2 All ER 159.
35 [2000] QB 551, see also London Central and Suburban Developments Ltd v Banger [1999]
ADRLJ 119.
36 24 March 1988 (CA).
37 [1992] Con LJ 164.
38 [2005] EWCA Civ 883; The Times, 30 June 2005.
39 Albon v Naza Motor Trading Sdn BHD (No 3) [2007] EWHC 327 Ch; [2007] 2 Lloyds Rep 1,
para 18.
40 Star Shipping AS v China National Foreign Trade Transportation Corporation, The Star
Texas [1993] 2 Lloyds Rep 445.
41 Albon v Naza Motor Trading Sdn BHD (No 3) [2007] EWHC 327 Ch; [2007] 2 Lloyds Rep 1,
para 18, but see Mustill & Boyd p. 465 and Sun Life Assurance Company of Canada v CX
Reinsurance Company Ltd [2003] EWCA Civ 283; [2004] Lloyds Rep IR 58 where the point
does not seem to have been in issue. In practice the distinction as to whether these words cover a
concluded agreement is only likely to affect the burden of proof on that issue since the party
applying for a stay must establish an arbitration agreement whereas the burden is upon the
opposing party to establish matters under section 9(4).
42 [2002] EWCA Civ 721; [2002] 2 All ER (Comm) 545.
43 Traube v Perelman 25 July 2001 (Jacobs J).
44 Mustill & Boyd, 2001 Companion, p. 217.

45 The Merak [1964] 2 Lloyds Rep 283 at 295, Grimaldi Compagnia Di Navagazione
SpA v Sekihyo Lines Ltd, The Seki Rolette [1998] 2 Lloyds Rep 638.
46 El Nasharty v J Sainsbury plc [2007] EWHC 2618, [2008] 1 Lloyds Rep 360.
47 [1981] 1 Lloyds Rep 302.
48 Government of Swaziland v Leila Maritime Co Ltd, The Leila [1985] 2 Lloyds Rep 172.
49 The concept of arbitrability has not been fully explored by the English courts, see Mustill &
Boyd, 2001 Companion, pp. 70-76.
50 [2004] EWHC 831; [2004] 4 All ER 1179.
51 Although it has been preserved by section 49(3) of the Supreme Court Act 1981, see Reichhold
Norway ASA v Goldman Sachs International [1999] 2 Lloyds Rep 567.
52 Albon v Naza Motor Trading Sdn BHD (No 3) [2007] EWHC 327 Ch; [2007] 2 Lloyds Rep
1, El Nasharty v J Sainsbury plc [2003] EWHC 2195 (Comm); [2004] 1 Lloyds Rep 309.
53 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 Lloyds Rep 291, 301.
54 Ibid.
55 Section 81(1) of the 1996 Act preserves the common law where it is consistent with the
provisions of that Act, in particular as to the effect of an oral arbitration agreement.
56 T & N Ltd v Royal & Sun Alliance plc [2002] EWHC 2420 (Ch); [2004] Lloyds Rep IR 102.
57 [2000] 1 Lloyds Rep 522 at 525 and 528, see also Albon v Naza Motor Trading Sdn BHD (No
3), [2007] EWHC 327 (Ch); [2007] 2 Lloyds Rep 1 and El Nasharty v J Sainsbury plc [2003]
EWHC 2195 (Comm); [2004] 1 Lloyds Rep 309.
58 Albon v Naza Motor Trading Sdn BHD (No 3) [2007] EWHC 327 Ch; [2007] 2 Lloyds Rep 1.
59 [2007] UKHL 40; [2008] 1 Lloyds Rep 254.
60 [2000] 1 Lloyds Rep 522, following guidelines laid down by HHJ Humphrey Lloyd QC
in Birse Construction Ltd v St David Ltd [1999] BLR 57. The Court of Appeal endorsed this
approach in Downing v Al Tameer Establishment [2002] EWCA Civ 721; [2002] 2 All ER
(Comm) 545.
61 Albon v Naza Motor Trading Sdn BHD (No 3) [2007] EWHC 327 (Ch); [2007] 2 Lloyds Rep
1, see also Law Debenture Trust Corporation PLD v Elektrim Finance BV [2005] EWHC 1412
(Ch); [2005] 2 Lloyds Rep 755 at 766 referring to paragraph 72 of the DAC Report and Anglia
Oils Ltd, Owners of the Marine Champion, 10 October 2002 where Gross J decided that staying
the proceedings to enable the tribunal to determine its jurisdiction would involve determining the
issue in favour of the defendant by the back door.
62 Albon v Naza Motor Trading Sdn BHD (No 3) [2007] EWHC 327 Ch; [2007] 2 Lloyds Rep 1,
para 20.

63 Ibid., where the arbitrators decision would be subject to Malaysian law with no power of
review.
64 [2000] 1 Lloyds Rep 522.
65 T & N Ltd v Royal & Sun Alliance plc [2002] EWHC 2420 (Ch); [2004] Lloyds Rep IR
102, El Nasharty v J Sainsbury plc [2003] EWHC 2195 (Comm); [2004] 1 Lloyds Rep
309, Albon v Naza Motor Trading Sdn BHD (No 3) [2007] EWHC 327 Ch; [2007] 2 Lloyds Rep
1.
66 Albon v Naza Motor Trading Sdn BHD (No 3) [2007] EWHC 327 Ch; [2007] 2 Lloyds Rep
1; El Nasharty v J Sainsbury plc [2003] EWHC 2195 (Comm); [2004] 1 Lloyds Rep 309.
67 A v B [2006] EWHC 2006 (Comm); [2007] 1 Lloyds Rep 237.
68 Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyds Rep 522; Albon v Naza Motor Trading
Sdn BHD (No 3) [2007] EWHC 327 Ch; [2007] 2 Lloyds Rep 1, El Nasharty v J Sainsbury
plc [2003] EWHC 2195 (Comm); [2004] 1 Lloyds Rep 309.
69 [1999] BLR 194.
70 Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyds Rep 522.
71 CPR Part 62, rule 62.3(2), SI No 3215, High Court and County Courts (Allocation of
Arbitration Proceedings) Order 1996.
72 Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyds Rep 522.
73 Section 9(1) of the 1996 Act, see rules 62.6(3) and 62.8(1) of CPR Part 62.
74 See section 9(1) of the 1996 Act and Socit Commerciale de Reassurance v Eras
International Ltd [1992] 1 Lloyds Rep 570 at 611-612.
75 A v B (No 2) [2006] EWHC 54 (Comm); [2007] 1 Lloyds Rep 358, para 11.
76 A & B v C, D, E, F, G & H [1982] 1 Lloyds Rep 166, affirmed in A v B [2006] EWHC 2006
(Comm); [2007] 1 Lloyds Rep 237, para 84.
77 Finnish Marine Insurance Company Ltd v Protective National Insurance Company [1990] 1
QB 1078; [1989] 2 Lloyds Rep 99.
78 The Rena K [1978] 1 Lloyds Rep 545 at 557 and The World Star [1986] 2 Lloyds Rep 274.
79 See Greenmar Navigation Ltd v Owners of Ships Bazias 3, The Bazias 3 [1993] 1 Lloyds Rep
101 on the scope of the discretion under section 26.
80 CPR, Rule 52.3.
81 [2000] 1 Lloyds Rep 467.

Chapter 8

Injunctions and Arbitration


Injunctions and Arbitration

1. Introduction
2. Types of injunction
3. Arbitrators jurisdiction to grant injunctions
4. Injunctions and the 1996 Act
5. Injunctions to restrain foreign proceedings
6. Injunctions to restrain arbitral proceedings
7. Practice

1. INTRODUCTION
An injunction is an order requiring a party to do something or (more usually) to refrain from doing
something. It is a remedy with a very broad range of use. For example, freezing orders may be
granted to stop a party dissipating its assets pending the determination of a dispute (see Chapter
18). Injunctions may also be the appropriate remedy to prevent disclosure of confidential
information (see Chapter 13). Injunctions are a general remedy which arbitrators can award under
section 48(5) of the 1996 Act (see Chapter 19). This chapter will focus on the use of an injunction
against a party who has breached an arbitration agreement by pursuing foreign proceedings which
relate to disputes the parties agreed to resolve by arbitration, or where a party is pursuing an
arbitration in an unlawful way (e.g., where the matter has already been decided against that party).
European case law1 now precludes an English court from granting such an injunction in relation to
proceedings in another EU state but such relief remains available to restrain proceedings outside
the EU. Where proceedings are brought in the English courts in breach of an arbitration clause the
appropriate remedy is a stay of proceedings (see Chapter 7).

2. TYPES OF INJUNCTION
English law recognises that an injunction may be granted either as an interim or as a final
remedy. A final injunction is a permanent order restraining a party indefinitely from doing
something (or requiring him to do something). An interim injunction is a temporary order and is
usually sought to preserve the status quo pending the final determination of the parties rights
(e.g., a freezing order will usually be subject to a time limit). Despite its temporary nature an
interim injunction may be commercially determinative of the dispute between the parties. The
basic rule governing the grant of an interim injunction is that the remedy is discretionary. The
applicant must establish a serious issue to be tried on the merits (although if the injunction is
likely to be determinative of the question of the forum for a dispute, an applicant will probably
have to show a stronger case on the merits).2 An interim injunction will not be granted if damages
would be an adequate remedy for the wrong alleged. The applicant must also establish that the
balance of convenience lies in favour of the grant of an injunction. This will involve considering
the risk of causing injustice if the injunction is granted or refused.3 One particular feature of an
interim injunction is that the applicant must give an undertaking (often to be supported by
security) to pay damages for any loss sustained by reason of the injunction if it is found that the
applicant was not entitled to it.

Injunctions are also sometimes categorised on grounds of whether they prohibit an act (a negative
injunction) or require a positive act (a mandatory injunction). The courts are generally much more
reluctant to make mandatory injunctions (whether interim or final) unless it is clear exactly what
the enjoined party is required to do and there is a high degree of assurance that the applicant is
entitled to the injunction.4 An injunction to restrain a party from pursuing foreign proceedings is
generally called an anti-suit injunction. A further type of injunction is one granted to restrain a
wrongful act which is threatened or imminent. This is sometimes called a quia timet 5 injunction.
Shell International Petroleum Co Ltd v Coral Oil Co Ltd 6 provides an example of a quia
timet anti-suit injunction. It involved an agreement for supply of oil providing for arbitration in
London of any dispute arising in connection with the agreement. Shell gave notice to terminate
the agreement and Coral threatened to bring proceedings in Lebanon claiming a right to
compensation granted under Lebanese law rather than on the basis of breach of the agreement.
Moore-Bick J granted an injunction to prevent Coral pursuing proceedings in Lebanon on grounds
that the claim that Coral wished to make in Lebanon depended on the contract and was a claim
within the scope of the arbitration clause.

3. ARBITRATORS JURISDICTION TO GRANT INJUNCTIONS


Section 48(5) of the 1996 Act makes clear that as regards remedies, arbitrators have the same
powers as the court to order a party to do or refrain from doing anything. Thus arbitrators may
grant an injunction as a remedy in an award (e.g., an order restraining disclosure in breach of
confidence). However, in practice a tribunals power to grant injunctions is more limited than that
of a court. First, an injunction granted by an arbitrator will only be enforceable against the parties
to the arbitration and cannot bind third parties. Secondly, an arbitrator lacks the courts coercive
powers to punish for non-compliance (e.g., committal for contempt). Thirdly, an arbitrator only
has power to grant final relief and cannot grant an interim injunction unless the parties have
agreed on such powers. This is because section 39 of the 1996 Act precludes the grant of interim
relief on a provisional basis in the absence of written consent. This construction of the Act was
applied in Starlight Shipping Co v Tai Ping Insurance Co Ltd 7 where Cooke J held that arbitrators
had powers under LMAA Terms to make a final award restraining the pursuit of foreign
proceedings, but not to grant an interim injunction. Even if the parties have agreed to confer
power on the tribunal to grant interim orders, such orders may be less easy to enforce than a
comparable court order, in particular since they would not generally be covered by the New York
Convention. Fourthly, urgent injunctive relief may be more difficult to obtain from an arbitral
tribunal because it may not be possible to constitute the tribunal at short notice. Maritime
arbitrators are likely to be reluctant to hear an application without full notice to the other party
since this is perceived as inconsistent with the consensual nature of arbitration and enforcement of
such an order could be refused on grounds of lack of proper notice. In addition, an arbitrators
order may be less likely to be given recognition in a foreign court. Accordingly, it is more
common for injunctions to be sought from a court.

4. INJUNCTIONS AND THE 1996 ACT


Section 48(5) of the 1996 Act expressly recognises the power of arbitral tribunals to grant
injunctions in a final award. The court has broad power under section 37 of the Supreme Court
Act 1981 to grant an injunction in all cases in which it appears to the court to be just and

convenient to do so. However, the precise scope of the courts jurisdiction to make injunctions in
the context of disputes relating to an arbitration has raised some difficult issues as to the
relationship between the wide powers conferred on the court by the 1981 Act and the much
narrower powers conferred by the 1996 Act.
In the past injunctions were available from the courts to prevent an arbitration being pursued
where the arbitrator was biased8 or where there was no arguable claim.9 Such decisions must now
be viewed in the light of the 1996 Act, which attempts to define the limits of the courts power to
intervene in the arbitral process. Section 1(c) provides that in matters governed by this Part the
court should not intervene except as provided by this Part. Accordingly, where the 1996 Act
provides a remedy, for example removal of an arbitrator for bias under section 24, the court will
not intervene by way of injunction.10
The 1996 Act has, however, expressly preserved the courts jurisdiction as developed by the cases
in so far as it is consistent with the scheme of the Act.11 In addition, section 44 of the Act
expressly allows the court to intervene by means of interim injunction in cases of urgency where
the arbitrators lack power or are unable to act effectively. This power is designed to enable the
court to grant freezing orders and other orders to preserve property or evidence and it can be used
to justify an interim anti-suit injunction to preserve the contractual right to arbitrate.12 The courts
powers to grant an injunction are not defined by section 44 since the courts have held that section
37 allows the courts to intervene by way of injunction whether or not section 44 could also be
brought into play.13 Indeed, if a party seeks a final injunction it will probably have to rely upon the
courtss powers under section 37 since section 44 does not give power to grant final relief.
However, in exercising any discretion to grant interim relief in support of an arbitration under
section 37 the court would have regard to matters which arise under section 44.14
In Starlight Shipping Co v Tai Ping Insurance Co Ltd,15 cargo insurers commenced Chinese
proceedings in breach of an arbitration clause incorporated into a bill of lading. London arbitration
was also commenced and Owners sought a final award restraining the Chinese proceedings but a
fully constituted tribunal was not available before the Chinese court would make a ruling on its
jurisdiction. Cooke J granted owners an interim anti-suit injunction restraining the cargo insurers
from pursuing the Chinese proceedings. He was satisfied that urgency in obtaining relief had been
established and the tribunal was unable to act effectively within the relevant timescale.
Section 72 of the Act also expressly recognises the right of a party who has not taken part in the
arbitral proceedings to seek relief by way of injunction. It provides that:
(1) A person alleged to be a party to arbitral proceedings but who takes no part in the
proceedings16 may question

(a) whether there is a valid arbitration agreement,


(b) whether the tribunal is properly constituted, or
(c) what matters have been submitted to arbitration in accordance with the arbitration
agreement, by proceedings in the court for a declaration or injunction or other appropriate
relief.

It is thus fair to conclude that the courts will continue to grant injunctions where expressly
permitted under the 1996 Act, where there is a gap in the protection conferred by the Act, or
where the tribunal would be unable to act effectively.

5. INJUNCTIONS TO RESTRAIN FOREIGN PROCEEDINGS


This type of injunction is commonly called an anti-suit injunction. It is usually sought where
foreign proceedings have been commenced for matters that the parties agreed to refer to
arbitration and damages would not be an adequate remedy for the breach of the arbitration
agreement. It could also be sought as a means of restraining foreign proceedings to challenge an
award17 or, alternatively foreign proceedings to enforce an award subject to challenge for want of
jurisdiction or serious irregularity.18 Where proceedings are brought in the UK in breach of an
arbitration clause the appropriate remedy is a stay of proceedings under section 9 of the 1996 Act.
An English court is not competent to stay foreign proceedings but it can restrain a party from
commencing or pursuing foreign proceedings. However, the European rules of jurisdiction
contained in EC Regulation 44/2001 (the Brussels Regulation) now preclude an English court
from granting anti-suit injunctions to restrain proceedings covered by that Regulation. The
Brussels Regulation broadly covers proceedings in civil and commercial matters in European
Union states.19 This would include claims in contract and tort, thereby covering most claims
ordinarily covered by arbitration clauses in shipping contracts. The influence of European law
means that injunctions to restrain proceedings within and outside the European Union must be
considered separately.

Injunctions to restrain proceedings within the EU20


The decision of the European Court of Justice (the ECJ) in The Front Comor 21 now means that
an English court will not grant an anti-suit injunction restraining a party from pursuing
proceedings before the courts of another EU or Lugano Convention state on the ground that such
proceedings would be in breach of an arbitration agreement. The ECJs earlier decision
in Turner v Grovit 22 precluded the grant of such an injunction on the grounds that proceedings
covered by the Brussels Regulation were being pursued in bad faith (this would cover proceedings
which were being pursued vexatiously or oppressively). These decisions marked a significant
change in practice since previously such injunctions were commonly available but the ECJ firmly
ruled that such relief would be incompatible with the Brussels Regulation.
In The Front Comor 23 the claimant shipowners vessel collided with the defendant charterers
jetty. The charter contained a London arbitration clause. Charterers insurers commenced delictual
proceedings in Sicily against owners to recover moneys paid out. Colman J granted owners an
anti-suit injunction to restrain the Italian proceedings on grounds of breach of the arbitration
clause. On leap-frog appeal to the House of Lords, the House of Lords referred the following
question to the ECJ: Is it consistent with [the Brussels Regulation] for a court of a Member State
to make an order to restrain a person from commencing or continuing proceedings in another
Member State on the ground that such proceedings are in breach of an arbitration agreement?
The ECJs response was negative. It accepted that the anti-suit injunction proceedings were
outside the scope of the Brussels Regulation but considered that the making of such an injunction
was inconsistent with the Regulation because it undermined its effectiveness. In particular, the

injunction would prevent the Sicilian court from ruling on whether it had jurisdiction under the
Regulation and would run counter to the mutual trust upon which the Regulation is based.

Alternative remedies, including anti-suit injunctions from


the arbitral tribunal
Until the ECJ decision in The Front Comor anti-suit injunctions from an English court were the
most common remedy for dealing with a party that breached a London arbitration clause by
pursuing foreign proceedings. Now that remedy is no longer available to restrain proceedings in
EU or EFTA states, parties will have to develop alternative means to deal with the problem of
proceedings wrongfully pursued in breach of arbitration agreements. The best means to avoid the
problem is to draft the arbitration clause as clearly and widely as possible so that a foreign court
will give effect to it and decline jurisdiction. However, in practice most arbitration agreements are
in standard form and it is also difficult to anticipate the approach of a foreign court to their
application. Some parties may now simply try to make best use of the procedures of the foreign
court, but these can involve long delays. Another source of relief would be to seek damages for
breach of the arbitration agreement from the arbitral tribunal. Such relief is recognised under
English law24 and maritime arbitrators are willing to award damages for costs incurred in foreign
proceedings wrongfully pursued where the claim is within the scope of the arbitration clause and
the foreign proceedings are not being pursued solely to obtain security.25 More difficulty may
arise if a party is claiming damages on grounds that the result would have been different before
the arbitral tribunal since this will involve an assessment of the appropriateness of the foreign
courts decision.
Parties may still apply to the English court for a declaration as to the validity of the arbitration
agreement but this remedy will probably only be of practical use in giving effect to the arbitration
agreement if the foreign judgment is likely to be enforced in the English courts.26
In light of The Front Comor parties may be more likely to apply to the arbitral tribunal for an antisuit injunction restraining the foreign proceedings. As discussed above, arbitrators have the power
to grant injunctions (including anti-suit injunctions27) but there are obvious limitations regarding
such powers. Unless otherwise agreed the tribunals powers to grant final injunctions under
section 48(5) of the 1996 Act are the same powers as the court so that The Front Comor may
preclude such relief unless the parties have agreed on additional powers. The need for anti-suit
relief may often arise before a tribunal has been constituted or is able effectively to act.
Furthermore, arbitrators lack the powers of enforcement available to courts and may be reluctant
to make an order that cannot be readily enforced. However, arbitrators do have sanctions for noncompliance (e.g., peremptory orders) and parties may be reluctant to disobey a tribunals award.
Further limitations are that arbitrators cannot grant interim relief unless the parties have so
agreed28 and will generally be unwilling to grant injunctions ex parte (i.e., in the absence of the
other party) even where there is urgency.
In addition, the compatibility of such anti-suit injunctions with EU law is open to argument, in
particular regarding enforcement. If the tribunal issues a peremptory order requiring compliance
with the injunction and default continues then the tribunal could proceed to an award on the
merits29 and such an award would probably be enforceable under the New York Convention

without falling foul of the Brussels Regulation. However, if a party asked the court to enforce a
peremptory order under section 42(1) of the 1996 Act then such enforcement by the English court
could be regarded as incompatible with the regulation on the basis of The Front Comor.
Overall, alternative remedies to anti-suit injunctions are likely to be developed by the courts and
tribunals but there will be some uncertainty as principles are established. In addition, future
amendment of the Brussels Regulation may resolve some problems.30

Injunctions to restrain proceedings outside the EU31


The law here remains largely unaffected by European law32 and has been built up by case law
(including case law involving EU proceedings decided prior to The Front Comor). The courts
jurisdiction to restrain foreign proceedings pursued in breach of an arbitration clause is clearly
preserved by the 1996 Act, but as discussed above, the courts will have regard to the provisions of
the Act (notably section 44) in exercising their discretion to grant such relief.33 It would be
arguable that the question of whether the foreign proceedings are in breach of the arbitration
agreement is a dispute within the scope of the arbitration agreement, so the application would be
subject to a stay of proceedings under section 9 of the 1996 Act.34 However, although the court
has accepted that there may be an overlap between the jurisdiction of the tribunal and that of the
court, this has not, in itself, justified refusing an injunction.35
The first prerequisite for an anti-suit injunction is that the party to be restrained is subject to the
powers of the English court.36 In this context, it will usually be necessary to establish that the seat
of the arbitration is in England.37
The courts jurisdiction to grant injunctions, whether interim or final, is generally confined to
injunctions granted (a) for the enforcement or protection of some legal or equitable right; or (b)
where the other partys conduct is vexatious, oppressive or unconscionable.38 The courts power is
statutory,39 but it is an equitable jurisdiction in origin and an injunction is an equitable remedy.
Accordingly, the power is discretionary; it is exercised when the ends of justice require it.40 The
term vexatious or oppressive has been used in a general way to cover the wide range of
situations where justice requires an injunction to be granted.41 It has also been used more narrowly
to cover conduct distinct from a mere breach of contract, for instance if a foreign court adopted
inherently unfair procedures.42 The English courts would not be willing to grant an anti-suit
injunction to restrain arrest proceedings where their sole purpose is to obtain security for the claim
to be arbitrated.43 However, if a party was using arrest proceedings for the purpose of frustrating
an arbitration agreement then relief may be available.44
To justify the grant of an anti-suit injunction it will usually be sufficient to establish that a party
has acted in breach of contract in commencing the foreign proceedings, without establishing any
other unconscionable or vexatious or oppressive conduct. Indeed, in Toepfer
International v Socit Cargill France 45 Phillips LJ drew a clear distinction between the courts
jurisdiction to intervene to restrain (i) a breach of contract; and (ii) unconscionable conduct.
Millett LJ in The Angelic Grace 46 stated that where an injunction is sought to restrain a party
from proceeding in breach of an arbitration agreement governed by English law the justification
for the grant of the injunction is that without it the plaintiff will be deprived of its contractual
rights in a situation in which damages are manifestly an inadequate remedy.47 The jurisdiction is,

of course, discretionary and is not exercised as a matter of course, but good reason needs to be
shown why it should not be exercised in any given case. The House of Lords
in Donohue v Armco Inc 48 preferred to use the test of strong reason.
Breach of the arbitration agreement will be fairly easy to establish if the foreign proceedings are
concerned with a contractual claim since this will usually fall clearly within the scope of the
arbitration clause. However, where tortious or other claims are made, the question of whether they
fall within the arbitration clause (and thus whether the foreign proceedings are a breach of the
arbitration clause) may itself be the source of dispute. In these circumstances, the applicant must
show that there is a sufficiently close connection between the tortious (or other) claim and the
contractual claim. The court has developed a twofold test for determining whether such a
connection is made out: it is necessary to show either that the resolution of a contractual issue is
necessary for the determination of the tortious (or other) claim, or that the contractual and tortious
disputes are so closely knitted together on the facts that an agreement to arbitrate on one can
properly be construed as covering the other.49 The parties will generally be taken to have intended
that disputes between them relating to the contract would be determined by a the same tribunal,
this is sometimes called the presumption of one-stop adjudication.
In The Angelic Grace 50 an arbitration clause in a voyage charter extended to all disputes arising
out of the contract. The vessel was involved in a collision and the charterers commenced
proceedings in Venice, claiming for damage to the other vessel. In English law this would be
characterised as a claim in tort based on the masters negligence. An arbitration was commenced
by owners based upon charterers breach of the safe anchorage warranty and negligence.
Charterers cross-claimed relying on the masters negligence. The Court of Appeal upheld an
injunction restraining the Venice proceedings, holding that the arbitration clause covered the
tortious claims in Venice. The claims in tort could not be segregated from the cross-claims under
the charterparty. The Court of Appeal relied in part upon the fact that the charterers claim for
negligence could not be determined without reference to the charterparty terms and also upon the
parties presumed choice of one-stop adjudication.
The court may also treat proceedings to challenge an award in a foreign jurisdiction as a breach of
the arbitration agreement.51 Even if the applicant establishes that the foreign proceedings infringe
its legal or equitable rights, typically by reason of breach of the arbitration agreement, the court
may refuse an injunction. Its power is discretionary and it will be influenced by any relevant
factors. In particular, the court will not grant an injunction that cannot be effectively enforced, for
example because the respondent is not within the jurisdiction and has no assets there.52 Relevant
factors going to the courts discretion include the risk of conflicting decisions53 but the fact that
the foreign court has been asked, but has not yet determined, whether it has jurisdiction is not in
itself a ground for refusing to grant an injunction.54 Factors going to the convenience or
appropriateness of the foreign court will, however, have little weight because London arbitration
is generally chosen on grounds of being a neutral forum.55 If the parties have already commenced
arbitration and the arbitral tribunal has been asked to determine whether it has jurisdiction over
issues in dispute in the foreign proceedings then the court may decline to pre-empt the tribunals
decision by granting an injunction. By contrast, where the arbitral tribunal has already decided it
has jurisdiction then the court may be more willing to grant injunctive relief.

The most common factor to be taken into account is whether the applicant has delayed in making
the application such that the foreign proceedings are advanced and prejudice will be caused by the
delay. Voluntary submission to the foreign court may also be good reason for refusing an
injunction, especially when the proceedings have progressed.56
In Toepfer International GmbH v Molino Boschi SRL 57 a dispute had arisen out of a contract for
the sale of soya meal. The contract contained a London arbitration clause on the GAFTA form but
the buyers had made a claim for short delivery and poor quality in the Italian courts. The sellers
contested jurisdiction in Italy from the outset but seven years after the Italian proceedings
commenced the sellers applied to the English court for an injunction restraining the buyers from
taking further steps in the Italian proceedings. By this stage any arbitration in London would have
been time-barred. Mance J refused the injunction on grounds of delay in applying for relief in
England and the progress of the Italian proceedings.

6. INJUNCTIONS TO RESTRAIN ARBITRAL PROCEEDINGS


This type of order is sometimes called an anti-arbitration injunction and the availability of such
relief has, like anti-suit injunctions, been a fertile source of litigation.
There are many early cases of injunctions being granted to restrain arbitral proceedings being
pursued, or even to restrain the arbitrators from proceeding with an award.58 These decisions must
now be viewed in the light of the restrictions on court intervention set out in the 1996 Act
(discussed in section 4) and also the House of Lords decision in Bremer Vulkan v South India
Shipping Corporation 59 to the effect that the courts have no general supervisory jurisdiction over
the conduct of arbitrations beyond that conferred by the Arbitration Acts.
In some respects the principles applicable to this type of relief are similar to those applying to
anti-suit injunctions. In particular the courts jurisdiction to intervene arises under section 37 of
the Supreme Court Act 1981 and the court will only intervene to enforce a legal or equitable right
or to protect against vexatious, oppressive or unconscionable conduct.60 However, the jurisdiction
is generally exercised much more sparingly.
In particular, in relation to injunctions to restrain an arbitration with a foreign seat the court would
act with extreme caution and only intervene in exceptional circumstances.61 Ordinarily
jurisdictional issues and case management should be left to the tribunal and any judicial
supervision should be for the courts of the seat of the foreign arbitration.
Where the arbitration to be restrained has an English seat, then the courts jurisdiction will be
restricted by the 1996 Act.62 In particular, where a party has taken part in the arbitration the
requirements of section 44 will usually be considered in an application for interim relief.63 Where
a party has not taken part in the arbitration then section 72 of the 1996 Act confirms that the court
may grant an injunction on grounds that the tribunal lacks substantive jurisdiction (e.g., invalidity
of the arbitration agreement).
The most common ground for seeking an injunction to restrain a party proceeding with an
arbitration is that the tribunal lacks jurisdiction to make a binding decision (for example, the
arbitration agreement is void64 or the matter has already been litigated65). Other grounds include
allegations that the pursuit of the arbitration is vexatious or oppressive66 or that there has been a

breach of the arbitration agreement (for example, by disregard of an agreement on the venue of the
arbitration67).
In contrast to the courts relatively liberal approach towards injunctions restraining the pursuit of
foreign proceedings in breach of an arbitration agreement, the courts have been much more
reluctant to intervene to restrain a party pursuing arbitral proceedings. First, the issue giving rise
to the injunction application will often be a matter within the scope of the arbitration clause so that
the application may be subject to a stay of proceedings under section 9 of the 1996
Act.68 Secondly, an injunction may not be an appropriate remedy, and indeed may usurp the role
of the arbitral tribunal, because the tribunal can deal most effectively with the issue, for instance,
by dismissing a claim or staying the arbitral proceedings.69
In addition, where the injunction is sought on grounds of invalidity of the arbitration agreement, it
is difficult to discern the infringement of right that is the basis for the courts intervention. The
arbitral proceedings will lead only to an invalid, unenforceable award, and an injunction will not
be granted solely on the grounds of preventing a party being harassed by futile proceedings.70 In
such circumstances the courts have sometimes declined to grant an injunction on the basis that it is
unnecessary to protect the applicants rights.71 The courts are now generally unwilling to grant an
injunction where alternative relief is available within the framework of the 1996 Act, for example
by raising a jurisdictional challenge before the tribunal or under section 67.
In Elektrim SA v Vivendi Universal SA 72 the parties had commenced LCIA arbitration under an
investment agreement but then produced a draft settlement agreement containing an ICC
arbitration clause. Subsequently, Elektrim denied the validity of the settlement agreement and
Vivendi commenced ICC arbitration seeking a declaration that the settlement was valid. Elektrim
claimed an injunction to restrain Vivendi from further pursuit of the LCIA arbitration until final
determination of the ICC arbitration on grounds that the simultaneous pursuit of both arbitrations
by Vivendi was vexatious and oppressive. Aikens J refused the injunction because Elektrim could
not establish that the pursuit of the LCIA proceedings constituted an infringement of a legal or
equitable right, or was vexatious or oppressive. Elektrim had agreed to LCIA arbitration and the
two arbitrations concerned different subject matters. In addition the injunction would be
inconsistent with the statutory scheme of the 1996 Act.
However, notwithstanding the difficulties associated with obtaining this type of injunction, the
courts have been willing to grant such relief in rare circumstances where such it is the only
effective means to protect a partys rights or to prevent oppressive litigation.
In Republic of Kazakhstan v Istil Group Inc 73 the defendant commenced LCIA arbitration in
defiance of a ruling of the French court. The defendant obtained an award in its favour but that
award was successfully challenged under section 67 for lack of jurisdiction. Notwithstanding this,
the defendant asked the LCIA tribunal to proceed to an award on the merits. The claimant applied
for an injunction restraining the defendant from pursuing any further claims in the LCIA
arbitration. Tomlinson J granted an injunction because further pursuit of the LCIA arbitration
would be oppressive, vexatious and unconscionable. Were the tribunal to proceed to an award on
the merits then the court would be bound, in light of the earlier court ruling on jurisdiction, to set
it aside for want of jurisdiction.

The courts jurisdiction remains discretionary and when an interlocutory injunction is sought the
application may turn on the balance of convenience, depending on factors such as delay in
applying and prejudice caused by the injunction.74 Where the application will be determinative of
the forum for a dispute the applicant for an interim injunction will have to show a strong case on
the merits.75 In most cases the balance of convenience will lie in favour of refusing an injunction
because most complaints can be resolved using procedures laid down under the act, for example
removing a tribunal under section 24 or challenging the award on grounds of jurisdiction or
serious irregularity.76

7. PRACTICE
Applications for injunctions arise in such a wide range of situations that it is beyond the scope of
this chapter to provide any definitive guide to practice. Where an application for an injunction is
made to the arbitral tribunal the procedure will follow that of any application, usually involving
submissions in writing and sometimes an oral hearing. Where an application is made to court it
should usually be made by means of an arbitration claim form.77 Detailed guidance on
applications for interim injunctions is given in the Civil Procedure Rules. It is common for interim
injunctions to be sought as a matter of urgency in the absence of one party and this sort of
application will require full and frank disclosure of any matters relevant to the application, even if
they are unfavourable. If the respondents are outside the jurisdiction it may be necessary to obtain
permission to serve the application on them. Again, guidance is to be found in the Civil Procedure
Rules.
The court has a wide discretion in the granting of injunctions and may impose such conditions as
it considers appropriate (for instance, undertakings as to damages are invariably required if an
interim injunction is sought). Where foreign proceedings, typically arrest proceedings, are pursued
for the purpose of obtaining security for a claim which the parties have agreed to refer to
arbitration, then ordinarily this will not in itself be treated as a breach of the arbitration
agreement.78 The court would only grant an injunction on terms that alternative security is
provided by the party applying for the injunction.79
Where the court has granted an anti-suit or anti-arbitration injunction on grounds that the other
party has acted in breach of contract, it may be willing to grant costs on an indemnity basis, in
particular where a party was deliberately in breach.80
1 Allianz SpA v West Tankers Inc Case C-185/07, [2009] 1 Lloyds Rep 413, commonly known
as The Front Comor and Turner v Grovit Case C-159/02 [2004] ECR I-3565; [2005] 1 AC 101.
2 Sheffield United Football Club Limited v West Ham United Football Club plc [2008] EWHC
2855 (Comm); [2009] 1 Lloyds Rep 167.
3 See generally, American Cyanamid Co v Ethicon Ltd [1975] AC 396; R v Secretary of State for
Transport, ex parte Factortame Ltd (No 2) [1991] AC 603.
4 Shepherd Homes Ltd v Sandham [1971] Ch 340, see further CPR, Part 25.
5 Meaning because he fears.
6 [1999] 1 Lloyds Rep 72.

7 [2007] EWHC 1893 (Comm); [2008] 1 Lloyds Rep 230, see also Kastner v Jason [2004]
EWHC 592 (Ch); [2004] 2 Lloyds Rep 233 in the context of freezing orders.
8 Beddow v Beddow (1878) 9 Ch D 89.
9 Sissons v Oates (1894) 10 TLR 392, a court would now probably refuse to interfere given that
the parties agreed to arbitrate (e.g., see Halki Shipping Corporation v Sopex Oils Ltd, The
Halki [1998] 1 Lloyds Rep 465).
10 See Fiona Trust & Holding Corporation v Privalov [2007] EWCA Civ 20; [2007] 2 Lloyds
Rep 267, where the Court of Appeal confirmed that an injunction should not be granted where
relief under section 9 of the 1996 Act was available. This part of the judgment was not subject to
appeal.
11 1996 Act, section 81(1) Nothing in this Part shall be construed as excluding the operation of
any rule of law consistent with the provisions of this Part, see also paragraph 312 of the DAC
Report.
12 Starlight Shipping Co v Tai Ping Insurance Co Ltd [2007] EWHC 1893 (Comm); [2008] 1
Lloyds Rep 230 and Cetelem SA v Roust Holdings Ltd [2005] EWCA Civ 618; [2005] 2 Lloyds
Rep 494.
13 Ibid.
14 Starlight Shipping Co v Tai Ping Insurance Co Ltd [2007] EWHC 1893 (Comm); [2008] 1
Lloyds Rep 230, Sheffield United Football Club Limited v West Ham United Football Club
plc [2008] EWHC 2855 (Comm); [2009] 1 Lloyds Rep 167,Elektrim SA v Vivendi Universal
SA [2007] EWHC 571 (Comm); [2007] 2 Lloyds Rep 8. However, section 44 was not directly
considered in Republic of Kazakhstan v Istil Group Inc [2007] EWHC 2739 (Comm); [2008] 1
Lloyds Rep 382. The restrictions imposed by section 44 do not apply when the court is
considering final injunctionsSteamship Mutual Underwriting Association (Bermuda)
Ltd v Sulpicio Lines Inc [2008] EWHC 914 (Comm); [2008] 2 Lloyds Rep 269.
15 [2007] EWHC 1893 (Comm); [2008] 1 Lloyds Rep 230, see also National Insurance &
Guarantee Corporation Ltd v M Young Legal Services Ltd [2004] EWHC 2972 (QB); [2005] 2
Lloyds Rep 46.
16 See Chapter 11 for the meaning of taking part in the proceedings.
17 C v D [2007] EWHC 1541 (Comm); [2007] 2 Lloyds Rep 367; [2007] EWCA Civ 1282;
[2008] 1 Lloyds Rep 239.
18 Burkett Sharp & Co v Eastcheap Dried Fruit Company and Perera [1962] 1 Lloyds Rep 267.
This type of injunction may now be more difficult to obtain unless the applicant can establish that
the proceedings would be contrary to the arbitration agreement or would infringe an equitable
right, for instance because they would be vexatious or oppressive or the foreign proceedings
would give rise to a defence in English law (see e.g., British Airways Board v Laker Airways
Ltd [1985] AC 58 at 81).

19 Similar provisions under the Lugano Convention set up jurisdictional rules covering similar
proceedings in the European Free Trade Association (i.e., Iceland, Norway and Switzerland).
Reference should be made to specialist works such as Dicey, Morris & Collins on the Conflict of
Laws for the precise scope of the Regulation and Lugano Convention.
20 And Iceland, Switzerland and Norway.
21 Allianz SpA v West Tankers Inc Case C-185/07, [2009] 1 Lloyds Rep 413.
22 Case C-159/02 [2004] ECR 1-3565; [2005] 1 AC 101.
23 Allianz SpA v West Tankers Inc Case C-185/07; [2009] 1 Lloyds Rep 413, applied in National
Navigation Co v Endesa Generacion SA, The Wadi Sudr [2009] EWHC 196 (Comm).
24 Union Discount v Zoller [2002] 1 WLR 517, see also CMA CGM SA v Hyundai MIPO
Dockyard Co Ltd [2008] EWHC 2791 (Comm); [2009] 1 Lloyds Rep 213.
25 Kallang Shipping SA v AXA Assurances Senegal, The Kallang [2008] EWHC 2761; [2009] 1
Lloyds Rep 124 at para 78.
26 National Navigation Co v Endesa Generacion SA, The Wadi Sudr [2009] EWHC 196 (Comm);
[2009] 1 Lloyds Rep 666.
27 Steamship Mutual Underwriting Association (Bermuda) Ltd v Sulpicio Lines Inc. [2008]
EWHC 914 (Comm); [2008] 2 Lloyds Rep 269, at para 33.
28 Starlight Shipping Co v Tai Ping Insurance Co Ltd [2007] EWHC 1893 (Comm); [2008] 1
Lloyds Rep 230.
29 Section 41(7)(c) of the 1996 Act.
30 Green Paper on the Review of Council Regulation (EC) No 44/2001 published in June 2009.
31 And Iceland, Switzerland and Norway.
32 In Shashoua v Sharma [2009] EWHC 957 (Comm) Cooke J made clear that The Front
Comor did not preclude this type of injunction.
33 E.g. Starlight Shipping Co v Tai Ping Insurance Co Ltd [2007] EWHC 1893 (Comm); [2008] 1
Lloyds Rep 230.
34 Toepfer International GmbH v Socit Cargill France [1998] 1 Lloyds Rep 379 at 385, Re
Qs Estate [1999] 1 Lloyds Rep 931.
35 Sheffield United Football Club Limited v West Ham United Football Club plc [2008] EWHC
2855 (Comm); [2009] 1 Lloyds Rep 167, para 40.
36 Socit Nationale Industrielle Aerospatiale v Lee Kui Jak [1987] 1 AC 871 at 892, Channel
Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 Lloyds Rep 291, CPR, Part 6 for
the rules governing the English courts jurisdiction.
37 C v D [2007] EWHC 1541 (Comm); [2007] 2 Lloyds Rep 367 and Shashoua v Sharma [2009]
EWHC 957 (Comm), para 23. If the seat of the arbitration is not England the court is unlikely to

consider that it is the proper forum for enforcing the arbitration agreement, see CPR Part 6.37(3)
and Part 62.5.
38 Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd [1993] 1 Lloyds Rep 291 at
306, Elektrim SA v Vivendi Universal SA [2007] EWHC 571 (Comm); [2007] 2 Lloyds Rep 8.
Some authorities suggest that the jurisdiction is only available where there is infringement of a
legal or equitable right, but in such cases this would usually include unconscionable, vexatious
and oppressive conduct (e.g., Bremer Vulkan Schiffbau und Maschinenfabrik v South India
Shipping Corporation [1981] AC 909 and Schiffahrtsgesellschaft Detlev Von Appen
GmbH v Voest Alpine Intertrading GmbH, The Jay Bola [1997] 2 Lloyds Rep 279 at 286).
39 Supreme Court Act 1981, section 37(1).
40 Socit Nationale Industrielle Aerospatiale v Lee Kui Jak [1987] 1 AC 871 at 892893; Schiffahrtsge-sellschaft Detlev Von Appen GmbH v Voest Alpine Intertrading GmbH [1997]
2 Lloyds Rep 279 at 286.
41 See the discussion in Socit Nationale Industrielle Aerospatiale v Lee Kui Jak [1987] 1 AC
871 at 892-893.
42 Schiffahrtsgesellschaft Detlev Von Appen GmbH v Voest Alpine Intertrading GmbH [1997] 2
Lloyds Rep 279 at 286-292; Bankers Trust Co v PT Jakarta International Hotels &
Development [1999] 1 Lloyds Rep 910 at 914; Bouygues Offshore SA v Caspian Shipping Co (No
2) [1997] 2 Lloyds Rep 485 at 489.
43 Kallang Shipping SA v AXA Assurances Senegal, The Kallang (Nos 1 & 2) [2006] EWHC
2825 (Comm); [2007] 1 Lloyds Rep 8; [2008] EWHC 2761; [2009] 1 Lloyds Rep 124, para 78.
44 Ibid.
45 [1998] 1 Lloyds Rep 379. The terms unconscionable and vexatious or oppressive are not
applied uniformly, for example, in Schiffahrtsgesellschaft Detlev Von Appen GmbH v Voest
Alpine Intertrading GmbH [1997] 2 Lloyds Rep 279 at 286, Hobhouse LJ characterised the
breach of contract in pursuing the foreign proceedings as unconscionable conduct. In The Angelic
Grace the Court of Appeal considered that the pursuit of proceedings in breach of the arbitration
clause was in itself vexatious, see also Sohio Supply Co v Gatoil (USA) Inc [1989] 1 Lloyds Rep
588 at 592 and Continental Bank NA v Aeakos Compania Naviera SA [1994] 1 Lloyds Rep 505 at
512.
46 Aggeliki Charis Compania Maritima SA v Pagnan SpA, The Angelic Grace [1995] 1 Lloyds
Rep 87.
47 The inadequacy of damages as a remedy is has been confirmed in Starlight Shipping Co v Tai
Ping Insurance Co Ltd [2007] EWHC 1893 (Comm); [2008] 1 Lloyds Rep 230 and Sheffield
United Football Club Limited v West Ham United Football Club plc [2008] EWHC 2855
(Comm); [2009] 1 Lloyds Rep 167.
48 [2001] UKHL 64; [2002] 1 Lloyds Rep 425.

49 Empresa Exportadora de Azucar v Industria Azucarera Nacional SA, The Playa Larga [1983]
2 Lloyds Rep 171; see also Continental Bank NA v Aeakos Compania Naviera SA [1994] 1
Lloyds Rep 505.
50 Aggeliki Charis Compania Maritima SA v Pagnan SpA [1995] 1 Lloyds Rep 87.
51 C v D [2007] EWHC 1541 (Comm); [2007] 2 Lloyds Rep 367; [2007] EWCA Civ 1282;
[2008] 1 Lloyds Rep 239.
52 Socit Nationale Industrielle Aerospatiale v Lee Kui Jak [1987] 1 AC 871 at 892; Philip
Alexander Securities & Futures Ltd v Bamberger [1996] CLC 1757 at 1789-1790.
53 Verity Shipping SA v NV Norexa [2008] EWHC 213 (Comm); [2008] 1 Lloyds Rep 652, A/S
D/S Svendborg v Wansa [1996] 2 Lloyds Rep 559, The El Amria [1981] 2 Lloyds Rep 119.
54 Aggeliki Charis Compania Maritima SA v Pagnan SpA, The Angelic Grace [1995] 1 Lloyds
Rep 87; Continental Bank NA v Aeakos Compania Naviera SA [1994] 1 Lloyds Rep 505,
although Phillips LJ expressed reservations as to this appoach in Toepfer International
GmbH v Socit Cargill France [1998] 1 Lloyds Rep 379 at 386.
55 Akai Pty Ltd v Peoples Insurance Co Ltd [1998] 1 Lloyds Rep 90 at 105. Colman J
in Toepfer International GmbH v Socit Cargill France [1997] 2 Lloyds Rep 98 at 110 also
considered that the New York Convention meant these factors should be given little weight.
56 A/S D/S Svendborg v Wansa [1996] 2 Lloyds Rep 559 at 570.
57 [1996] 1 Lloyds Rep 510 (decided before The Front Comor precluded anti-suit injunctions to
restrain EU proceedings). See also Verity Shipping SA v NV Norexa [2008] EWHC 213 (Comm);
[2008] 1 Lloyds Rep 652.
58 Malmesbury Railway Co v Budd (1876) 2 Ch D 113; Beddow v Beddow (1878) 9 Ch D 89.
59 [1981] AC 909.
60 Cetelem SA v Roust Holdings Ltd [2005] EWCA Civ 618; [2005] 2 Lloyds Rep 494.
61 Weissfisch v Julius [2006] EWCA 218; [2006] 2 Lloyds Rep 716, Albon v Naza Motor
Trading SDN BHD (No 4) [2007] EWHC 1879 (Ch); [2007] 2 Lloyds Rep 420, upheld in [2007]
EWCA Civ 1124; [2008] 1 Lloyds Rep 1.
62 Elektrim SA v Vivendi Universal SA [2007] EWHC 571 (Comm); [2007] 2 Lloyds Rep 8,
Aikens Js analysis is probably to be preferred to that of Gloster J in Intermet FZCO v Ansol
Limited [2007] EWHC 2739 (Comm) where the issue was not argued.
63 Starlight Shipping Co v Tai Ping Insurance Co Ltd [2007] EWHC 1893 (Comm); [2008] 1
Lloyds Rep 230 (anti-suit injunction). Aikens J in Elektrim SA v Vivendi Universal SA [2007]
EWHC 571 (Comm); [2007] 2 Lloyds Rep 8 accepted that section 44 would not justify an antiarbitration injunction in that case. Section 44 was not considered in Republic of Kazakhstan v Istil
Group Inc [2007] EWHC 2739 (Comm); [2008] 1 Lloyds Rep 382, para 46. The restrictions
under section 44 have been held not to apply to applications for final injunctionsSteamship

Mutual Underwriting Association (Bermuda) Ltd v Sulpicio Lines Inc [2008] EWHC 914
(Comm); [2008] 2 Lloyds Rep 269.
64 E.g., Albon v Naza Motor Trading SDN BHD (No 4) [2007] EWHC 1879 (Ch); [2007] 2
Lloyds Rep 420, upheld in [2007] EWCA Civ 1124; [2008] 1 Lloyds Rep 1.
65 Siporex Trade SA v Comdel Commodities Ltd [1986] 2 Lloyds Rep 428 at 435.
66 E.g., Elektrim SA v Vivendi Universal SA [2007] EWHC 571 (Comm); [2007] 2 Lloyds Rep 8.
67 Compagnie Europeene De Cereals SA v Tradax Export SA [1986] 2 Lloyds Rep 301 at 306.
68 Sheffield United Football Club Limited v West Ham United Football Club plc [2008] EWHC
2855 (Comm); [2009] 1 Lloyds Rep 167 suggests that a stay application is unlikely in itself to
preclude the grant of an injunction. If a jurisdictional issue arises on the stay application (e.g., as
to the validity of the arbitration agreement) then the court may be able to resolve that issue,
thereby probably precluding the need for an injunction. See Chapter 7 and Al-Naimi vIslamic
Press Agency Inc [2000] Lloyds Rep 522 and Albon v Naza Motor Trading (No 3) [2007] 2
Lloyds Rep 1.
69 See, for example, the analysis in Republic of Kazakhstan v Istil Group Inc [2007] EWHC 2739
(Comm); [2008] 1 Lloyds Rep 382, para 46 and Elektrim SA v Vivendi Universal SA [2007]
EWHC 571 (Comm); [2007] 2 Lloyds Rep 8 at para 75.
70 Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation [1981] AC
909 at 981.
71 North London Railway Co v Great Northern Railway Co (1883) 11 QBD 30; London &
Blackwall Railway Co v Cross (1886) 13 Ch D 354.
72 [2007] EWHC 571 (Comm); [2007] 2 Lloyds Rep 8.
73 [2007] EWHC 2739 (Comm); [2008] 1 Lloyds Rep 382.
74 E.g. Industrie Chimiche Italia Centrale v Alexander Tsavlivris & Sons Maritime Co, The
Choko Star [1987] 1 Lloyds Rep 508; Intermet FZCO v Ansol Limited [2007] EWHC 2739
(Comm); Elektrim SA v Vivendi Universal SA [2007] EWHC 571 (Comm); [2007] 2 Lloyds Rep
8 at paras 80-85.
75 Sheffield United Football Club Limited v West Ham United Football Club plc [2008] EWHC
2855 (Comm); [2009] 1 Lloyds Rep 167.
76 Elektrim SA v Vivendi Universal SA [2007] EWHC 571 (Comm); [2007] 2 Lloyds Rep
8, Compagnie Europeene De Cereals SA v Tradax Export SA [1986] 2 Lloyds Rep 301 at 307;
1996 Act, sections 67 and 68.
77 CPR Part 62.2(1)(d) and Practice Direction to Part 62, para 8.1.
78 Cf. Kallang Shipping SA v AXA Assurances Senegal, The Kallang [2006] EWHC 2825
(Comm); [2007] 1 Lloyds Rep 8 where the arrest proceedings were used for the purpose of
avoiding London arbitration.

79 Petromin SA v Secnav Marine Ltd [1995] 1 Lloyds Rep 603; Re Qs Estate [1999] 1 Lloyds
Rep 931, (unless there is a very broad Scott v Avery clause e.g. Mantovani v Carapelli SpA [1980]
1 Lloyds Rep 375).
80 A v B (No 2) [2007] EWHC 54 (Comm); [2007] 1 Lloyds Rep 358. The Court of Appeal
in C v D [2007] EWCA Civ 1282; [2008] 1 Lloyds Rep 239, accepted this decision but refrained
from treating such a costs order as general practice. Similar orders could be made where a party
had pursued vexatious or oppressive proceedings.

Chapter 9

Extending Agreed Time Limits for Beginning Arbitral Proceedings


Extending Agreed Time Limits for Beginning Arbitral Proceedings

1. Introduction
2. The application of the power to extend time
3. The test for granting an extension
4. When time begins to run
5. Practice

1. INTRODUCTION
It is very common for a charterparty or bill of lading to impose a contractual limitation period
within which arbitration must be commenced. For instance, the Centrocon arbitration clause
provides that:
All disputes from time to time arising out of this contract shall be referred to two
arbitrators . Any claim must be made in writing and the claimants arbitrator appointed within
three months of final discharge, and where this provision is not complied with the claim shall be
deemed to be waived and absolutely barred.
These time limits are usually much shorter than the ordinary English statutory limition period of
six years for claims in contract and tort (cargo claims are subject to a one-year limitation period
where the Hague-Visby Rules apply as a matter of statute). The purpose of these limits is normally
to allow commercial parties to draw a line under transactions at a much earlier stage than the
ordinary limitation period would allow. However, they may be seen to operate harshly where the
time limit is extremely short or where it applies before the cause of action has even accrued.
Before 1996, the courts had a wide statutory discretion to extend the time for commencing
arbitration where a contractual time limit created undue hardship.1 Under the 1996 Act it is much
more difficult to obtain an extension. Indeed, the courts power to intervene is now so much
narrower that applications have become quite rare. The change was made because the old law was
considered too interventionist and inconsistent with the principle of giving effect to the parties
bargain. The drafters of the 1996 Act decided that party autonomy required full justification for

any court intervention2 and that only a narrow power to extend in the following terms adopted in
section 12 of the 1996 Act could be justified:

(1) Where an arbitration agreement to refer future disputes to arbitration provides that a
claim shall be barred, or the claimants right extinguished unless the claimant takes within a
time fixed by the agreement some step
o (a) to begin arbitral proceedings, or
o (b) to begin other dispute resolution procedures which must be exhausted before arbitral
proceedings can be begun. the court may by order extend time for taking that step.
(2) Any party to the arbitration agreement may apply for such an order (upon notice to the
other parties), but only after a claim has arisen and after the applicant has exhausted any
available arbitral process for obtaining an extension of time.
(3) The court shall make an order only if satisfied
o (a) that the circumstances are such as were outside the reasonable contemplation of the
parties when they agreed the provision in question, and that it would be just to extend the
time, or
o (b) that the conduct of one party makes it unjust to hold the other party to the strict terms
of the provision in question.

2. THE APPLICATION OF THE POWER TO EXTEND UNDER SECTION 12


Section 12 is a mandatory provision; it applies regardless of the parties agreement to the contrary.
The courts power to grant an extension of time arises if the following threshold requirements are
present:

(a) there is an agreement to refer future disputes to arbitration;


(b) the seat of the arbitration is in England and Wales;3
(c) the agreement provides that a claim shall be barred, or the claimants right extinguished,
unless the claimant takes within a time fixed by the agreement some step
o (i) to begin arbitral proceedings, or
o (ii) to begin other dispute resolution procedures which must be exhausted before arbitral
proceedings can be begun;
(d) a claim has arisen;
(e) any available arbitral process for obtaining an extension of time has been extended;
(f) the statutory time limit for the commencement of arbitration has not expired.

An agreement to refer future disputes to arbitration


Section 12 applies to agreements to refer future disputes to arbitration. This reflects the previous
law which was intended to relieve hardship caused by time bars unwittingly agreed to in standard
form contracts.4 Such hardship is unlikely to arise where the parties agree to arbitrate after a
dispute has arisen.
Where an agreement provides for the resolution of disputes either by the court or by reference to
arbitration, section 12 would probably still apply to the commencement of arbitration since there
is an agreement, even if conditional, to refer future disputes to arbitration.5 An optional
agreement to arbitrate is valid even if the option is exercisable only by one party.6 If there is a

dispute as to the scope or existence of the arbitration agreement then the court will probably
proceed to determine that issue but it could leave it for the arbitral tribunal to decide.7

The arbitration agreement fixes a period for beginning


arbitral proceedings (or other dispute resolution
procedures which must be exhausted before arbitral
proceedings can be begun)
This requirement will ordinarily be satisfied because most contractual time limits for commencing
arbitration are contained within the arbitration clause. However, many tanker charterparties
contain an arbitration clause with a separate provision limiting the time allowed for presentation
of supporting documents for any claim, or for performance of some other act related to a claim.
Section 12 will probably not relieve a claimant who has failed to comply with such a provision
unless the act required by that provision can be construed as taking a step to begin arbitral
proceedings or to begin other dispute resolution procedures which must be exhausted before
arbitral proceedings can be begun. Generally, provisions of this sort in shipping contracts have
not satisfied this requirement.
In The Oltenia 8 a vessel was chartered on the Asbatankvoy form providing for arbitration in
London and containing an additional clause in the following terms:
Charterers shall be discharged and released from all liability in respect of any claims Owners
may have under this Charter Party (such as, but not limited to, claims for deadfreight, demurrage,
shifting expenses or port expenses) unless a claim has been presented to Charterers in writing with
all available supporting documents within 90 days from completion of discharge of the cargo
concerned under this Charter Party.
The Owners did not submit supporting documents to the Charterers for one claim and failed to
present another claim altogether within the 90-day period. The Court of Appeal held (with some
reluctance) that section 27 of the 1950 Act could not be invoked since the presentation of a claim
within the above clause could not be treated as a step in commencing arbitration.
The DAC made clear that the reference in section 12 to other dispute resolution procedures is
intended to cover hybrid provisions which call for some other method of dispute resolution (e.g.,
mediation or expert determination) to precede recourse to arbitration; it is not intended to widen
the scope of the power to extend time beyond this.9
Section 12 would probably apply where a party had failed to make a claim in writing for the
purposes of the Centrocon arbitration clause since performance of this step is so closely associated
with the obligation to arbitrate that it should be regarded as part of the beginning of
arbitration.10 The authorities under the old law suggest that where a party has [1986] 2 Lloyds
Rep 328. been in default of a time limit for doing something other than commencing arbitration,
the courts power to extend time will only be available if the provision containing the time limit
and the arbitration agreement can be construed as going hand in hand.11 Factors tending to
favour the application of the power to extend time might include the fact that the notice provision

and arbitration agreement are contained in the same clause, that these provisions are subject to the
same time limit, and that the notice is to be given by the same party who is claiming arbitration.12

A claim has arisen


The court will take a fairly flexible approach to the requirement of a claim. It need not be a
cause of action in the strict sense of that word.13 It is, however, implicit that the power to extend
time for commencing arbitration would only be exercised if the claimant is asserting a claim
which, at least arguably, comes within the scope of the arbitration agreement. If an issue arose as
to whether the claim was within the scope of the arbitration clause the court would probably
determine the issue of jurisdiction.14

Any available arbitral process for obtaining an extension


of time has been exhausted
Many commodities contracts incorporate a time limit for commencing arbitration but expressly
give arbitrators discretion to extend that time.15 It is clear from section 12(2) that in such a case
the claimant must apply first to the tribunal for an extension of time. Where the tribunal has
refused an extension of time the claimant is clearly not precluded from applying to the court for an
extension. However, the DAC considered that the prospect of such an application being successful
was slight.
It would be a rare case indeed where the court extended the time in circumstances where there
was such a process which had not resulted in an extension, for it would in the ordinary case be
difficult if not impossible to persuade the court that it would be just to extend the time or unjust
not to do so, where by an arbitral process to which ex hypothesi the applying party had agreed, the
opposite conclusion had been reached.16
It is arguable, however, that the court should not consider the tribunals decision as an overriding
factor in exercising its own discretion, as the 1996 Act has expressly qualified party autonomy by
making mandatory provision for the court to grant an extension even where the tribunal itself had
power to extend time.17

The time provided by statute for commencing arbitration


has not expired
Section 12 does not affect time limits imposed by statute.18 This means that it will not provide
relief where a party has failed to commence arbitration within the statutory limitation period
imposed by the Limitation Act 1980.19 If the Hague-Visby Rules (or the Hague Rules) apply as a
matter of statute by reason of the Carriage of Goods by Sea Act 1971 or a foreign law20 then the
one-year time limit from the date of delivery will apply and cannot be extended.21 The HagueVisby Rules will apply as a matter of English statute to many claims under bills of lading for loss
or damage of goods.22
Where parties incorporate the Hague Rules into their contract, for instance by means of a clause
paramount,23 this will generally mean that those Rules apply as a matter of contract, not statute.
Accordingly, the court would have power to grant an extension,24 although it may be reluctant to

exercise its discretion to extend such a well-established time limit. Where the Hague-Visby Rules
are incorporated into a bill of lading it is unlikely that section 12 would apply since such
incorporation is given statutory force under section 1(6)(a) of the Carriage of Goods by Sea Act
1971.

3. THE TEST FOR GRANTING AN EXTENSION


If the court has jurisdiction to grant an extension it will then consider whether to exercise its
discretion in favour of extending time. Under section 12(3) the court may grant an extension only
if satisfied that:

(a) the circumstances are such as were outside the reasonable contemplation of the parties
when they agreed the provision in question and it would be just to extend time; or
(b) the conduct of one party makes it unjust to hold the other party to the strict terms of the
provision in question.

If the court is satisfied that the case satisfies the requirements of either sub-section 12(3)(a) or (b)
then an extension should ordinarily be granted. The use of the word only in section 12(3)
suggests that these requirements are the essential threshold conditions for the power to grant an
extension but the courts discretion to refuse an extension is not defined by the matters set out
therein.25 The courts discretion may be influenced by other considerations relevant to whether an
extension of time is appropriate (e.g., the existence of other proceedings by which the claim could
be more appropriately pursued). The courts discretion is further widened by the fact that an
extension under section 12 may be granted on such terms as it thinks fit.

The circumstances are such as were outside the


reasonable contemplation of the parties when they
agreed the provision in question
The test for deciding whether circumstances are outside the parties reasonable contemplation is
one of fact and each case will depends on its facts.
The court is concerned not only with what the parties actually contemplated but what they
reasonably would have contemplated. This must involve a consideration of the relevant
transaction, of ordinary practices within that type of transaction and with the reasonable
expectations of parties involved in such a transaction.26
The first requirement under section 12(3)(a) is said to be designed to reflect the overall
philosophy of Part I of the 1996 Act so that, in effect, the parties can only escape from their
arbitration bargain if events arise which can, in effect, clearly be said to fall outside that
bargain.27 It is a novel test and conceptually quite different28 from the previous law. The
nearest analogy is with the principles governing remoteness of damages for breach of contract
under which a party is only entitled to damages for losses which the parties reasonably
contemplated at the time of contracting as liable to result from breach.
The reasonable contemplation of the parties

Waller LJ attempted to provide some guidelines for applying the test in Harbour and General
Works Ltd v The Environment Agency. 29 He considered that section 12(3)(a) was concerned with
party autonomy: it is concerned not to allow the court to interfere with a contractual bargain
unless the circumstances are such that if they had been drawn to the attention of the parties when
they agreed to the provision, the parties would at the very least have contemplated that the time
bar might not applyit then being for the court finally to rule as to whether justice required an
extension of time to be given. This suggests that the court will apply a variant of the officious
bystander test30 to see whether, if asked at the time of contracting, the parties would have
envisaged the time bar applying in the circumstances arising. In practice, the test suggested
in Harbour and General Works will not be much easier to apply than the wording of the statute
because the parties evidence as to how they would have reacted if the circumstances had been
drawn to their attention at the time of contracting will be influenced by hindsight as to the legal
significance of what has happened. In particular, the circumstances giving rise to the failure to
commence arbitration within time will very often be mishaps arising after the parties have handed
over the case to their P&I Club or solicitors. In concluding a contract, most commercial parties
will not contemplate the range of mistakes which might arise after handing the case over to
lawyers. Accordingly, the judge will have to make a difficult, and somewhat artificial, assessment
of whether the parties would reasonably have considered it acceptable for the time bar to apply if
the circumstances had been drawn to their attention and they had been advised of their legal
consequences.31
The probability of the circumstances in question arising is relevant in deciding whether they are
outside the parties reasonable contemplation at the time of contracting. Most types of situation
could reasonably be contemplated as possible but it is much more questionable whether parties
would contemplate that the time limit would apply in that situation. For example, parties could
reasonably contemplate that a claim could be sent by a motor bike which could be involved in a
crash.32 However, such circumstances are so improbable that they would quite possibly be treated
as outside the parties bargain. It is likely that the courts will implicitly incorporate a similar test
of probability to that used in the contractual rules of remoteness of damage;33 for instance, if
circumstances are reasonably contemplated as a serious possibility then it is likely that they will
be treated as within the parties contemplation for the purposes of section 12. The Court of Appeal
in Harbour and General Works Ltd v Environment Agency 34 accepted that an extension of time
should not be given because the circumstances which had arisen (overlooking a time bar due to an
administrative oversight) were far from being so uncommon as to be treated as beyond the
parties reasonable contemplation.
The relevant circumstances
The circumstances to be considered are not defined but the court may look at all the circumstances
in which the application arises, including those relating to the way the claim has arisen and also
those leading to the application for the extension.35 The relevant circumstances must include those
which cause or contribute to the claimants failure to comply with the time bar.36 The court will
take account of the underlying commercial purpose of the time-bar provisions in issue.37 If the
applicant caused or controlled the circumstances in question this will be a material factor in
assessing the circumstances, but such control would not preclude the giving of an extension. For

example, if a notice to arbitrate was put through the wrong letterbox the fact that this was within
the control of the claimant would not rule out an extension.38 However, in Korbetis v Transgrain
Shipping BV 39 Toulson J considered that an extension would be more likely to be available where
the time limit was missed due to an extraneous event rather than an internal error within one
partys control.

It would be just to extend time


The second requirement for section 12(3)(a) is that it would be just to grant an extension.
In Vosnoc Ltd v Trans Global Ltd 40 the judge appeared to equate this requirement with the test of
undue hardship under section 27 of the 1950 Act. However, the decision not to retain the test of
undue hardship suggests that the courts discretion is broader. Usually there should be no need
to enter into a full enquiry as to the balance of justice where the first requirement of section
12(3)(a) is satisfied. If events have arisen outside the parties contemplation which have resulted
in a time bar being missed then this will ordinarily be sufficient in itself to make it unjust to hold
the parties to the bargain.41 If an enquiry is to be made into the balance of justice for the purpose
of the second requirement of section 12(3)(a), the following matters are likely to be of relevance:

(a) The merits of the claim. If a claim has no merit then there will be no injustice if it is shut
out. However, the court will not consider the merits beyond assessing whether the claim or
defence is plainly doomed since otherwise the application would become a pre-trial of the
dispute agreed to be referred to arbitration.42
(b) The length of the delay after the expiry of the time limit and whether the claimant has
acted promptly in seeking an extension of time.43
(c) The amount at stake.
(d) Whether the delay was due to the fault of the claimant or to circumstances outside his
control and the degree of such fault.
(e) Whether the other party has been prejudiced by the delay, and if so, the degree of such
prejudice.

These are the main factors which were used in applying the test of undue hardship under the
1950 Act.44 The factor which will probably continue to be considered most important is whether
the delay has caused prejudice to the other party.

The conduct of one party makes it unjust to hold the


other party to the strict terms of the provision in
question
The courts power to intervene under this part of section 12 is based upon preventing injustice
arising from the conduct of the party relying upon the time bar. However, in view of the DACs
insistence upon full justification for any court intervention to override the parties bargain, the
discretion to extend time on this ground is exercised sparingly. On an application under this part
of section 12, the court will focus on the conduct of the other party. The conduct need not be
wrongful or blameworthy,45 but mere silence in not taking a time-bar point would not ordinarily

suffice to justify an extension of time.46 Similarly, the mere fact that a party took part in settlement
negotiations would not be conduct making it unjust for him to rely upon the time bar.47
A party seeking to rely upon this provision is most likely to succeed if he can bring himself within
the established doctrines of waiver and estoppel recognised under English law, or an applicable
foreign law doctrine based on good faith, under which a party to a contract is precluded by his
conduct from relying on its strict contractual terms. Waiver and estoppel are matters of substantive
contract law, details of which are beyond the scope of this book.48 In brief, under English law, a
claimant must show unequivocal conduct or representations on the part of the defendant that a
time limit will not be enforced, or a shared understanding that no time limit applies, in
circumstances where it would be unjust to allow reliance on the contracts strict terms. If there is a
binding agreement to override the time bar then this would mean that section 12 is not strictly
necessary since the time bar would not be applicable (see section 5 below).
Issues of estoppel, waiver, or collateral agreement going to the enforceability of the time limit are
ordinarily matters within the tribunals jurisdiction (an issue as to the effectiveness of a time limit
will not usually affect the tribunals jurisdiction49) and if such issues are raised the defendant
could probably insist that the tribunal decides the issues within its jurisdiction.50

Application of the test under section 12(3)


There is little authority on section 12 and given the strictness of the test applications are rare.
Overall, the authorities suggest that it will be extremely difficult to satisfy and an extension would
probably only be granted if the circumstances are entirely out of the ordinary. The discussion in
the cases gives some guidance on circumstances which might give rise to an extension of time.
An unusual failure of communication, or sudden illness of the person handling the matter for
the claimant might be within section 12(3)(a).51
The lawyer handling the claim suffering a heart attack just before serving notice of the claim,
or the vehicle from which the written claim was to be served being involved in a serious
accident.52
A loss only materialising or becoming significant after the time bar had expired might possibly
justify an extension unless that situation ought to have been foreseen.53
In The Catherine Helen,54 a voyage charter contained the Centrocon arbitration clause with a oneyear time limit from final discharge. Shortly after discharge, the owners P&I club had provided a
guarantee against third-party cargo claims and there had been correspondence with charterers
relating to this indemnity. The owners did not make a claim for an indemnity within time although
they did make a claim for demurrage and berthing expenses. The section 12 application was in
respect of the owners claim for an indemnity against cargo claims. Brice QC, sitting as a deputy
High Court judge, found that it was not outside the parties contemplation that owners would seek
an indemnity against cargo claim or that the owners might make a mistake as to the correct way of
making a claim and appointing arbitrators. The application under section 12 was dismissed.
A mistaken view of the legal situation is unlikely to justify an extension of time unless the
circumstances are exceptional.

In Vosnoc Ltd v Trans Global Projects Ltd 55 one of the first cases on section 12, Judge Raymond
Jack QC gave a broad interpretation of the test in section 12(3)(a). A letter intended to commence
arbitration was ineffective because it failed expressly to call for the appointment of an arbitrator.
Judge Raymond Jack QC called this a near miss which would not have been in the parties
contemplation at the time of contracting and justified an extension under section 12(3)(a).
This case is a rare example of a successful application for an extension under section 12(3)(a) and
has been distinguished as turning on its own facts.56 Subsequent cases have adopted a narrower
approach which will probably be preferred. A change in the law is unlikely to justify an extension
unless, perhaps, it is wholly unexpected.57 In Harbour and General Works Ltd v The Environment
Agency 58 the Court of Appeal held that a failure to read the time-bar provision properly could not
trigger the courts power to extend time.
A mistake of law was also considered in The Seki Rolette. 59 The applicants were time charterers
of a vessel which had sunk. They sought an extension of time for a claim for loss of property
including lashing equipment, a fork lift truck, a car deck and bunkers. Neither party had
considered that the Hague Rules applied to the claim for loss of this property until after the one
year time bar had expired. Mance J expressly reserved the question of whether a misunderstanding
as to the scope of application of the time bar or as to the need to commence arbitration could be
within section 12(3)(a) because it might be shown that awareness of the correct legal position was
outside the parties contemplation. However, on the facts before him he found that the existence
and application of the Hague Rules time bar was not outside the parties reasonable
contemplation. The Hague Rules were incorporated into the parties charter and once they were
found to apply to the claims then it would be difficult to show that the circumstances were outside
the parties reasonable contemplation.

4. WHEN TIME BEGINS TO RUN


The operation of the time bar will depend on the terms of the arbitration clause in question but
some forms are particularly common. Under Article III, rule 6 of the Hague Rules (and the HagueVisby Rules), suit in respect of goods carried must be brought within one year of their delivery or
of the date when they should have been delivered. This means arbitration must be
commenced60 within one year from when the goods were, or should have been, completely
delivered.
Under many arbitration clauses (e.g., the arbitration clause in the Centrocon charter-party form)
time runs from the date of final discharge and this generally means the date when all the goods
carried under the relevant contract are completely discharged from the vessel. The term has been
held to require actual discharge, so that time will not run if no cargo was ever discharged.61 Where
there is a charterparty for several consecutive voyages then time will run from completion of
discharge on the voyage out of which the claim arises.62 The time agreed for commencing
arbitration may often be shorter than the time allowed under the Hague Rules (or Hague-Visby
Rules). The question of which time limit prevails depends on the proper construction of the
contract but the arbitration clause will normally prevail as the dominant provision.63

5. PRACTICE

The arbitration claim


Once a claimant realises that he may be out of time he is expected to act promptly in issuing a
claim form so as to put the other side on notice of his intention to claim arbitration.64 In shipping
cases the application should usually be made in the Commercial Court or the Mercantile List of
the Central London county court by means of an arbitration claim form,65 (see the flow chart on
court applications at Appendix L).

Alternative applications based on the time-bar being


inapplicable
Under the old law it was common practice for a party to apply for an extension of time under
section 27 of the 1950 Act, with an alternative application for a declaration that the other party
was not entitled to rely upon the time limit (e.g., by reason of waiver or a collateral agreement).
This enabled the claimant to make his primary case that the time bar was not applicable (usually
based on arguments such as the proper construction of the time bar or estoppel), failing which he
could seek a statutory extension of time.
The Civil Procedure Rules recognise this practice by stating that where the claimant applies for
an order under section 12 of the 1996 Act he may include in his arbitration claim form an
alternative application for a declaration that such an order is not needed.66 However, the practice
is no longer as straightforward. First, the courts powers to grant an extension under section
12(3)(b) cover cases based on waiver or estoppel so that granting declaratory relief on these
grounds would probably now be regarded as inconsistent with section 12 and accordingly no
longer available.67 A more significant obstacle is that the court is being asked to resolve issues
which the parties agreed to arbitrate. The decision in The Seki Rolette 68 has made clear that the
other party would be entitled to a stay of those parts of the proceedings which raise issues falling
within the arbitration agreement. This means that where a party wants to contend that the time bar
does not apply, but that if it does the court should grant an extension of time, the court may only
be able to decide the application for an extension of time.
In The Seki Rolette 69 time charterers made claims for lashing equipment, a car deck and bunkers
lost when the vessel sank. Owners relied on the Hague Rules time limit. Charterers sought
declaratory relief as to whether the Hague Rules were incorporated into the charter and also as to
whether the goods lost were goods within the Hague Rules. Alternatively, they contended that if
there was such a time bar, the court should extend time under section 12 of the 1996 Act. Owners
sought a stay of the claim for declaratory relief under section 9 of the 1996 Act on the ground that
it raised issues agreed to be referred to arbitration. Mance J found that it was for the arbitrators to
resolve the matters raised in the application for declaratory relief. He approached the application
for an extension on the assumption, agreed without prejudice to any contrary case that might be
made in the arbitration, that the time bar applied.
This type of situation raises substantial practical difficulties and the court will be keen to resolve
the dispute efficiently.70 Particular problems may arise with timing since a party is expected to
make his application for an extension under section 12 as soon as possible after he discovers he is
out of time, but the extension application may be unnecessary if the time bar is not applicable. In

addition, the two forms of relief sought may mean that a party has to run inconsistent cases before
each tribunal: the extension of time can only be granted on the basis that the Hague Rules apply,
yet before the tribunal the claimant may be seeking to show that the Hague Rules do not apply.
In The Seki Rolette, Mance J provided important guidance as to the various approaches that can be
adopted in such a situation. First, the claimant may secure the defendants agreement that both
issues (i.e., applicability of the time bar and the extension of time) may be determined by the
court: this is consistent with CPR Part 62, rule 62.4(3) and will probably minimise costs and
delay. If the defendant refuses to agree then it is likely that he will obtain a stay of the claim for
declaratory relief. In such a situation the claimant must decide how best to pursue his alternative
contentions. If he wishes to have the issue as to whether there is any applicable time bar decided
first, then he can ask the defendant to agree to the postponement of the application for an
extension. (This may also be appropriate if at the outset the claimant wants the arbitral tribunal to
resolve the issue as to the applicability of the time bar.) Alternatively, the claimant can protect his
position by issuing an application for an extension of time and asking to the court to stay it
pending the arbitrators decision on whether the time bar applies.
If the arbitrators are asked to determine whether the time bar applies first then this should
ordinarily be determined as a preliminary issue and the tribunal should not make a final award on
the substance of the claim which would prejudice the claimants right to seek an extension under
section 12. The claimant may, however, wish to have the application for an extension decided first
or concurrently with the proceedings before the arbitrators. The claimant may ask the court to
proceed on the assumption that there is an applicable time bar. If, however, the claimant will seek
to adopt a case before the court that is inconsistent with his case before the arbitrators (e.g., that
the Hague Rules do or do not apply) then it would be advisable to ask the defendant to agree that
the section 12 application should proceed without prejudice to the position adopted before the
arbitrators. If such an agreement is not forthcoming then it may be appropriate to ask the court to
stay the section 12 application pending the tribunals decision.

Permission to serve a claim form out of the jurisdiction


If the defendant to the arbitration claim is an overseas party and has not authorised English
solicitors or other agents to accept service on his behalf, it may be necessary to obtain permission
to serve the arbitration claim form out of the jurisdiction pursuant to CPR Part 62, rule 62.5. The
application for permission to serve out of the jurisdiction is usually made by a separate application
notice. (Once permission is granted the claim form can be served on the defendant.)

Costs
The claimant will normally be ordered to pay the costs of the court application, whether successful
or not, because he is seeking the indulgence of the court and is prima facie at fault for allowing a
time limit to expire. However, in special circumstances the court may award costs to the
claimant,71 for instance, where the defendant has unreasonably resisted the application.

Conditions and length of extension

Under section 12, the court may extend time on such terms as it thinks fit. This would appear to
give the court jurisdiction to make the extension conditional upon a payment into court or
provision of security for the claim.72 The court would probably not make an extension of time
conditional on the giving of security for the costs of the arbitration since this is ordinarily a matter
for the arbitral tribunal to decide.73 The extension of time will normally be for a short period to
complete the appointment process (such as seven days) unless special circumstances justify a
longer period. It may be prudent to re-confirm the notice of appointment of an arbitrator even if
steps were taken to appoint an arbitrator before the application was made.

Appeals
The permission of the court of first instance is required for any appeal from a decision under
section 12.74 The grant of an extension of time is ordinarily a matter of discretion and the court
will generally only give permission to appeal if it considers that the question raised is one of
general importance. The Court of Appeal will only interfere with the judges discretion if he has
erred in principle by failing to apply the correct test or by failing to take into account some
material matter (or by taking into account an immaterial matter), or if the judges exercise of
discretion is outside the ambit of reasonable disagreement. The Court of Appeal will not interfere
merely because it would have come to a different decision. However, if the judge has erred in law
then it would probably review the whole decision.75
1 Section 27 of the Arbitration Act 1950.
2 Paragraph 69 of the DAC Report.
3 Sections 2(1) and 84(2) of the 1996 Act. If arbitral proceedings have not commenced then the
Act would apply to an application for an extension of time by virtue of the Arbitration Act
(Commencement No 1) Order 1996, SI 1996/3146.
4 See the McKinnon Committee Report (1927) Comd No 2817.
5 Navigazione Alta Italia SpA v Concordia Maritime Chartering AB, The Stena Pacifica [1990] 2
Lloyds Rep 234.
6 Pittalis v Sherefettin [1986] QB 868.
7 Al-Naimi v Islamic Press Agency Inc. [2000] 1 Lloyds Rep 522 discussed in Chapter 7
and Grimaldi Compagnia di Navigazione SPA v Sekihyo Lines Ltd, The Seki Rolette [1998] 2
Lloyds Rep 638 discussed below.
8 Babanaft International Co SA v Avant Petroleum Inc [1982] 1 WLR 871.
9 Paragraph 74(i) of the DAC Report.
10 Jadranska Slobodna Plovidba v Oleagine SA, The Luka Botic [1984] 1 Lloyds Rep 145, see
also Mariana Islands Steamship Corporation v Marimpex Mineraloel-Handelsgesellschaft GmbH
& Co, The Medusa

11 Pittalis v Sherefettin [1986] QB 868; Richurst v Pimenta [1993] 1 WLR 159, the courts power
to extend time applied to a time limit for a tenant giving notice of election of rent assessment by
an independent surveyor but not to the time limit for a landlord giving notice of rent review.
12 Richurst v Pimenta [1993] 1 WLR 159.
13 Sioux Inc v China Salvage Co, The American Sioux [1980] 2 Lloyds Rep 224.
14 Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyds Rep 522, discussed in Chapter 7.
15 GAFTA and FOSFA contracts provide such a discretion.
16 Paragraph 74(ii) of the Report, see also Grimaldi Compagnia di Navagazione SPA v Sekihyo
Lines Ltd, The Seki Rolette [1998] 2 Lloyds Rep 638 at 645.
17 In Comdel Commodities Ltd v Siporex Trade SA [1991] AC 148 at 170 Lord Bridge considered
that the court should make its assessment of whether to grant an extension and should not be
unduly influenced by the tribunals decision, particularly where no reasons are given for the
tribunals refusal.
18 Section 12(5) of the 1996 Act.
19 Section 14(1) of the 1996 Act defines what steps must be taken to commence arbitration for the
purposes of the Limitation Act. This definition is applicable generally unless the arbitration clause
sets out the steps to be taken, in which case these must apply. The requirements of the 1996 Act
must be satisfied but a legalistic approach to construing the notice claiming arbitration will be
avoided: Nea Agrex SA v Baltic Shipping Co Ltd, The Agios Lazaros [1976] 2 Lloyds Rep 47 at
51; Vosnoc Ltd v Trans Global Projects Ltd [1998] 1 Lloyds Rep 711; Allianz Versicherungs
Aktiengesellschaft v Fortuna Co Inc, The Baltic Universal [1999] 1 Lloyds Rep 497; See Chapter
10 on appointments.
20 Foreign Limitation Periods Act 1984.
21 Kenya Railways v Antares Co Pte Ltd, The Antares (No 2) [1987] 1 Lloyds Rep 424.
22 Carriage of Goods by Sea Act 1971.
23 A clause paramount generally incorporates the Hague Rules, Seabridge Shipping AB v AC
Orssleffs EFTFS A/S [1999] 2 Lloyds Rep 685.
24 Nea Agrex SA v Baltic Shipping Co Ltd, The Agios Lazaros [1976] 2 Lloyds Rep 47.
25 However, the word shall is used rather than the more permissive provision in section 1(c)
that the courts should not intervene except as provided by the Act, see Vale Do Rio Doce
Navegacao SA v Shanghai Bao Steel Ocean Shipping Co Ltd [2000] 2 Lloyds Rep 1 at 11.
26 Cathiship SA v Allanasons Ltd, The Catherine Helen [1998] 2 Lloyds Rep 511 at 520.
27 The DACs July 1995 Consultative Paper.
28 Harbour and General Works Ltd v Environment Agency [2000] 1 Lloyds Rep 65 at 71,
approved in the Court of Appeal at 81.

29 [2000] 1 Lloyds Rep 65 at 81 approved in Thyssen Inc v Calypso Shipping Corporation, The
Markos N [2000] 2 Lloyds Rep 243 at 248. In Korbetis v Transgrain Shipping BV [2005] EWHC
1345 (QB), Toulson J restricted the test further to suggest that section 12(3)(a) only covers
circumstances which were not only beyond the reasonable contemplation of the parties, but were
also such that if the parties had contemplated them, they would also have contemplated that the
time bar might not apply. However he considered that this restriction would make little difference
in practice.
30 See Chitty on Contracts (30th edn) para 13-007.
31 This type of assessment arose in Grimaldi Compagnia Di Navagazione Spa v Sekihyo Lines
Ltd [1998] 2 Lloyds Rep 638 at 649.
32 Cathiship SA v Allanasons Ltd, The Catherine Helen [1998] 2 Lloyds Rep 511 at 520.
33 Koufos v C Czarnikow Ltd, The Heron II [1969] 1 AC 350.
34 [2000] 1 Lloyds Rep 65.
35 Vosnoc Ltd v Trans Global Projects Ltd [1998] 1 Lloyds Rep 711 at 719, The Catherine
Helen [1998] 2 Lloyds Rep 511 at 520. The relevant circumstances may not, however, include
the coming into force of sectionp 12Grimaldi Compagnia Di Navagazione Spa v Sekihyo Lines
Ltd, The Seki Rolette [1998] 2 Lloyds Rep 638 at 650.
36 Harbour and General Works Ltd v Environment Agency [2000] 1 Lloyds Rep
65, Monella v Pizza Express (Restaurants) Ltd [2003] EWHC 2966 (Ch), (2004) 12 EG 172.
37 Clarke J in Fox & Widley v Guram [1998] 3 EG 142.
38 Harbour and General Works Ltd v Environment Agency [2000] 1 Lloyds Rep 65 at 81.
39 [2005] EWHC 1345 (QB)
40 [1998] 1 Lloyds Rep 711.
41 See Lord Justice Saville in [1995] 61 Arbitration 157 at 162. In Grimaldi
Compagnia v Sekihyo Lines Ltd, The Seki Rolette [1998] 1 Lloyds Rep 638 at 650, Mance J
found there would have been no injustice even if the first part of section 12(3)(a) had applied.
However, this was in the context of an argument that the parties ignorance of the change in the
law was outside the parties reasonable contemplation.
42 Mediterranea Raffineria Siciliana Petroli SpA v Kuwait Oil Tanker Co SAK, The Al
Faiha [1981] 2 Lloyds Rep 99 at 105; First Steamship Co Ltd v CTS Commodity Transport
Shipping Schiffahrtsgesellschaft mbH, The Ever Splendour[1988] 1 Lloyds Rep 245 at 250.
43 Thyssen Inc v Calypso Shipping Corporation, The Markos N [2000] 2 Lloyds Rep 243 at 248.
44 See Moscow V/O Exportkhleb v Helmville Ltd, The Jocelyne [1977] 2 Lloyds Rep 121.
45 The Catherine Helen [1998] 2 Lloyds Rep 511 at 522.

46 Vosnoc Ltd v Trans Global Projects Ltd [1998] 1 Lloyds Rep 711 at 719; Grimaldi
Compagnia Di Navagazione Spa v Sekihyo Lines Ltd, The Seki Rolette [1998] 2 Lloyds Rep 638
at 650.
47 Mustill & Boyd (2nd edn) p 208.
48 See contract texts such as Chitty on Contracts.
49 Leif Hoegh & Co A/S v Petrolsea Inc, The World Era [1992] 1 Lloyds Rep 45; Grimaldi
Compagnia Di Navagazione Spa v Sekihyo Lines Ltd, The Seki Rolette [1998] 2 Lloyds Rep 638
at 644.
50 Grimaldi Compagnia Di Navagazione Spa v Sekihyo Lines Ltd, The Seki Rolette [1998] 2
Lloyds Rep 638 (discussed below).
51 Vosnoc Ltd v Trans Global Projects Ltd [1998] 1 Lloyds Rep 711 at 719.
52 Cathiship SA v Allanasons Ltd [1998] 2 Lloyds Rep 511 at 520.
53 Vosnoc Ltd v Trans Global Projects Ltd [1998] 1 Lloyds Rep 711 at 718.
54 Cathiship SA v Allanasons Ltd, The Catherine Helen [1998] 2 Lloyds Rep 511 at 520.
55 [1998] 1 Lloyds Rep 711.
56 Cathiship SA v Allanasons Ltd, The Catherine Helen [1998] 2 Lloyds Rep 511 at
521; Harbour and General Works Ltd v Environment Agency [2000] 1 Lloyds Rep 65 at 72-81.
57 Monella v Pizza Express (Restaurants) Ltd [2003] EWHC 2966 (Ch), (2004) 12 EG 172.
58 [2000] 1 Lloyds Rep 65.
59 Grimaldi Compagnia Di Navagazione Spa v Sekihyo Lines Ltd [1998] 2 Lloyds Rep 638 at
650.
60 See section 14 of the 1996 Act and Chapter 10.
61 Denny, Mott & Dickson Ltd v Lynn Shipping Co Ltd [1963] 1 Lloyds Rep 339.
62 Richmond Shipping Ltd v Agro Co of Canada, The Simonburn (No 2) [1973] 1 Lloyds Rep
392.
63 Metalfer Corporation v Pan Ocean Shipping Co Ltd [1998] 2 Lloyds Rep 632.
64 Irish Agricultural Wholesale Society Ltd v Partenreederei MS, The Eurotrader [1987] 1
Lloyds Rep 418; Thyssen Inc v Calypso Shipping Corporation, The Markos N [2000] 2 Lloyds
Rep 243 at 249.
65 High Court and County Courts (Allocation of Arbitration Proceedings) Order 1996 (SI No
3215). See generally CPR, Part 62 and the Arbitration Practice Direction, paragraph 14.1.
66 CPR, Part 62, rule 62.4(3).
67 Sections 1(c) and 81 of the 1996 Act.

68 Grimaldi Compagnia Di Navagazione Spa v Sekihyo Lines Ltd [1998] 2 Lloyds Rep 638.
69 Ibid.
70 See by analogy, Al-Naimi v Islamic Press Agency Inc. [2000] 1 Lloyds Rep 522 discussed in
Chapter 7.
71 Mediterranea Raffineria Siciliana Petroli SpA v Kuwait Oil Tanker Co SAK, The Al
Faiha [1981] 2 Lloyds Rep 99 at 106.
72 Sioux Inc v China Salvage Co, The American Sioux [1980] 2 Lloyds Rep 224.
73 Section 38(3) of the 1996 Act, see also section 1(c).
74 Section 12(6) of the 1996 Act.
75 Cast Shipping Ltd v Tradex Export SA, The Hellas in Eternity [1979] 2 Lloyds Rep 280.

Chapter 10

Appointment of Arbitrators and Umpires


Appointment of Arbitrators and Umpires

1. Introduction
2. Number of arbitrators to be appointed
3. Procedure for appointment of arbitrators
4. Default procedure where one party fails to co-operate
5. Appointment of umpires
6. Substituting arbitrators and umpires
7. Remedies for defective appointments
8. Commencing arbitration for the purpose of time limits
9. Terms of appointment

1. INTRODUCTION
It is important to ensure that an arbitrator is properly appointed, as failure to make a valid
appointment may have far-reaching consequences: an award made by an incorrectly appointed
tribunal may be set aside as invalid and the defective appointment may be incurable if the time
limit for commencing arbitration has expired.1 The first place to look in order to determine the
correct steps for appointing an arbitrator is the arbitration clause. In many cases, however, the
arbitration clause (or the rules which it incorporates) will provide no express assistance. In the
absence of any other agreement it is necessary to rely on the statutory rules governing
appointment. Under English law, the appointment of an arbitrator is based on consent; no special
formalities are required and it is essentially a matter of obtaining the arbitrators agreement to act
and then notifying the other side of that agreement.2

The statutory provisions on appointment are contained in a single section of the 1996 Act entitled
The Arbitral Tribunal. These provisions give priority to the parties choice: section 16(1) makes
clear that the parties are free to agree on the procedure for appointing the arbitrator or
arbitrators. The statutory rules are only applicable in the absence of agreement otherwise and
court intervention is minimised to cases where the parties cannot agree and the statutory
framework fails to provide a solution. Any agreement on appointment of arbitrators or umpires
must be in writing to be given effect under the 1996 Act (see section 5 of the Act).

2. NUMBER OF ARBITRATORS TO BE APPOINTED


The starting point is the parties agreement on how many arbitrators are to be appointed. This will
ordinarily be found in the arbitration clause. Section 15 of the 1996 Act provides that:

(1) The parties are free to agree on the number of arbitrators to form the tribunal and whether
there is to be a chairman or umpire.
(2) Unless otherwise agreed by the parties, an agreement that the number of arbitrators shall
be two or any other even number shall be understood as requiring the appointment of an
additional arbitrator as chairman.
(3) If there is no such agreement, the tribunal shall consist of a sole arbitrator.

Section 15(1) follows Article 10 of the Model Law and reflects the principle of party autonomy
underlying the Act. Section 15(2) gives statutory recognition to the office of chairman whilst
section 20 sets out the role of the chairman (see Chapter 19 on decision making). The LMAA
Terms largely follow sections 15 and 20 of the Act in providing that if the tribunal is to consist of
three arbitrators, the third arbitrator shall be the chairman (unless agreed otherwise) and his view
shall prevail in relation to a decision in which there is neither unanimity nor a majority.3 The
LMAA Intermediate Claims Procedure provides that in the absence of agreement the tribunal is to
consist of three arbitrators.
Section 15(3) retains the previous rule that the tribunal should consist of a sole arbitrator in the
absence of agreement on the number of arbitrators.4 For example, where a contract simply
provides for arbitration in London with no reference to the size of the tribunal there is a
statutory presumption that a sole arbitrator is to be appointed. However, if the clause specifies
arbitration in London in the customary manner or in the usual way this may amount to a
choice excluding the statutory presumption.
In The Laertis,5 Bingham J found that arbitration in London in the customary manner was a
reference to two arbitrators. Evidence from nine London arbitrators had been given which
indicated that this type of tribunal was most frequently used in London arbitrations. It would
probably now be found that tribunals of three arbitrators (rather than two arbitrators plus an
umpire) are most common in maritime arbitrations. In particular, there are many three arbitrator
arbitration clauses (e.g., the NYPE Charter) and it is the invariable practice of LMAA arbitrators
to ask the parties to agree that any umpire be treated as a third arbitrator.

3. PROCEDURES FOR THE APPOINTMENT OF ARBITRATORS


Section 16 of the 1996 Act provides as follows:

(1) The parties are free to agree on the procedure for appointing the arbitrator or arbitrators,
including the procedure for appointing any chairman or umpire.
(2) If or to the extent that there is no such agreement, the following provisions apply.
(3) If the tribunal is to consist of a sole arbitrator, the parties shall jointly appoint the
arbitrator not later than 28 days after receipt of a request in writing by either party to do so.
(4) If the tribunal is to consist of two arbitrators, each party shall appoint one arbitrator not
later than 14 days after receipt of a request in writing by either party to do so.
(5) If the tribunal is to consist of three arbitrators
o (a) each party shall appoint one arbitrator not later than 14 days after service of a request
in writing by either party to do so, and
o (b) the two so appointed shall forthwith appoint a third arbitrator as the chairman of the
tribunal.

(7) In any other case (in particular, if there are more than two parties) section 18 applies as in
the case of a failure of the agreed appointment procedure.

Once again, the starting point is the parties agreement. Case law suggests that a broad and
flexible approach should be taken to the interpretation of section 16 (and section 14), and the
focus should be on the substance of relevant communications between parties rather than their
form.6
The existing common law principles will be of relevance in giving full effect to the parties
agreement or the statutory provisions applicable in the absence of agreement. For instance, in the
absence of written agreement to the contrary, an appointment of an arbitrator by one party is
probably only complete if communicated to the other party.7 Proper notification of an appointment
to the other side is essential for a valid appointment and extreme caution should be exercised
where notice is given to a chartering broker or any other agent who may not have authority to
accept the notice.8

Appointment of a sole arbitrator


Section 16(3) of the 1996 Act deals with the position where a sole arbitrator is to be appointed.
The written notice to be given under section 16(3) does not have to be in any special form (e.g., it
could simply require the respondent to concur in the appointment of an arbitrator for a given
dispute). Atlanska Plovidba makes clear that, when interpreting section 16(3), the substance of
communications should be prioritised over their form.9 In that case, a solicitors letter referring to
disputes arising under a bill of lading (when the dispute actually arose under a booking note) was
a sufficient notice for the purposes of section 16(3). However, if the notice is not complied with a
court application may be necessary. Accordingly, in the interests of clarity, it should usually:

(a) refer briefly to the subject matter of the dispute and the relevant contract (the respondent
can reasonably argue that his approval of an arbitrator will depend on the matter to be
determined);10
(b) require the respondent to agree to the appointment of an arbitrator to determine the
dispute, normally offering the respondent names of possible arbitrators for agreement within a
given time limit of at least 28 days. (The parties can agree on the method of reckoning time

for the purpose of such time limits, but otherwise section 78 of the Act will apply to
calculation of time limits);
(c) state the claimants intention to apply to court if no joint appointment is agreed within the
time limit given.

The parties may agree on the method of service of the notice requesting an appointment but in the
absence of such agreement the notice may be served by any effective means; this would certainly
include delivery by post to the addressees last known business address or, if a company, its
registered or principal office.11 Fax and email are now extremely common methods of
communication in relation to commencing an arbitration and would generally be treated as
effective means of notice. However, the burden lies on the sender to show that receipt of the email
has occurred: notice may not be effective if the system rejects the email.12 Paragraph 27 of the
LMAA Terms provides that where a party is represented by a lawyer or other agent in connection
with any arbitral proceedings, service of a notice on that lawyer or agent will be treated as
effectively served. This paragraph may be of limited use in making notices to appoint since it will
only be of binding effect where the parties have already agreed that the LMAA Terms are to apply
to the arbitral proceedings and the intended respondent has already authorised his lawyer or agent
to act on his behalf in the dispute.
If there is agreement on a particular arbitrator, the parties should then send a joint written request
asking him to decide the disputes to be submitted. The appointment is only valid and binding
when the chosen arbitrator has agreed to act.13 Written confirmation of the appointment is prudent
since the terms of any appointment will be relevant to any future dispute as to the scope of matters
referred to arbitration.14

Appointment of tribunals of two arbitrators


An agreement for the appointment of two arbitrators will, in the absence of any other agreement,
be treated as requiring the appointment of an additional arbitrator as chairman.15 Accordingly, the
procedure for appointment of three arbitrators set out in section 16(5) of the 1996 Act will
ordinarily apply where the parties have not agreed otherwise. The normal procedure is for the
claimant to:

(a) ask an arbitrator to accept appointment;


(b) obtain the arbitrators acceptance of the appointment;
(c) give notice of the appointment and the identity of the arbitrator to the respondent;
(d) serve a written notice that a responding appointment is required within at least 14
days.16 (Paragraphs 8 and 9(a) of the LMAA Terms require each party to appoint one
arbitrator not later than 14 days after service of a request in writing by either party to do so.)
The notice should preferably make clear that in the absence of a notice of a responding
appointment within the given time limit a default appointment will be made.

The respondent should then:

(a) appoint a willing arbitrator within 14 days (or the period of time given); and
(b) notify the claimant of the appointment.17

If the respondent fails to make the requested appointment, he risks the claimants arbitrator being
made sole arbitrator under section 17 described below. Each arbitrator asked to act must have
actually agreed to act in order for notification to the other side of his appointment to be
effective.18 The two arbitrators should then, in the absence of any other agreement, appoint a third
arbitrator as chairman of the tribunal.19 However, paragraph 8(b) of the LMAA Terms gives the
arbitrators full discretion as to when such an appointment is made so long as they do so before
any substantive hearing or forthwith if they cannot agree on any matter relating to the arbitration.
In practice, arbitrators often seek to reduce costs by refraining from making a third appointment
until they reach the stage where a hearing or an award is required. It is implicit that the arbitrators
should inform the parties of the appointment of the third arbitrator.

Appointment of tribunals of three arbitrators


It is common for an arbitration clause to provide for three arbitrators. For example, clause 17 of
the New York Produce Exchange charterparty form provides:
That should any dispute arise between Owners and Charterers the matter in dispute shall be
referred to three persons at [London],20 one to be appointed by each of the parties hereto, and the
third by the two so chosen; their decision or any two of them, shall be final.
Often the arbitration agreement will not set out clearly the procedure for appointing the three
arbitrators, in which case section 16(5) provides that each party will appoint an arbitrator and the
two so appointed will forthwith appoint a third arbitrator as the chairman of the tribunal.
Decisions may be made by all or a majority of the tribunal and the tribunals decision shall prevail
in the absence of unanimity or a majority.21 The procedure will follow that set out in the section
above. Paragraph 8 of the LMAA Terms largely follows the statutory procedure for appointment
of the tribunal but it is important to note that the LMAA Terms will only govern the constitution
of the tribunal if both parties have already agreed to the application of the LMAA Terms or both
of the original arbitrators accepted appointment subject to LMAA Terms; the appointment of a
single arbitrator subject to the LMAA Terms will not be sufficient in itself to incorporate the
Terms.22
If no hearing is required and the two arbitrators find that they are in agreement, they can ask the
parties for consent to make an award as a two-man tribunal in order to dispense with the need for a
third appointment. However, express consent from both parties would be necessary for the
decision of the two arbitrators to be binding in such a situation since the arbitration clause
specifically provides for a tribunal of three arbitrators. The tribunal would thus be technically
incompetent to make any valid order or award until it had been completed by the appointment of a
third member, even if the two arbitrators appointed by the parties are in agreement.23 Paragraph
8(d) of the LMAA Terms avoids this technical difficulty by expressly providing that even where
the arbitration agreement is for three arbitrators, the two original arbitrators shall have power to
make valid orders and awards even where a third arbitrator has not been appointed.

Appointment of tribunals of more than three arbitrators


and other cases

Agreements for more than three arbitrators usually arise where the parties have chosen arbitration
pursuant to rules requiring a panel of arbitrators. The arbitration rules will normally provide a
procedure for nomination of arbitrators. Typically, there is provision for the selection of
arbitrators by a trade association. In the absence of any such agreement the parties would have to
apply to court for directions under section 18 of the 1996 Act (see below on default
appointments).24 Section 18 also allows for appointments by the court where the parties have not
agreed on the appointment procedure and the case is not specifically dealt with under section 16
for example, where there are more than two parties and no agreed mechanism for appointing
arbitrators.

4. DEFAULT PROCEDURE WHERE ONE PARTY FAILS TO APPOINT AN


ARBITRATOR

Where a sole arbitrator is to be appointed


The disadvantage of providing for a sole arbitrator (or making no agreement on the number of
arbitrators so that it is presumed that the tribunal shall consist of a sole arbitrator25) is that if the
other party fails to appoint an arbitrator then it will ordinarily be necessary to make a court
application. Section 18 of the 1996 Act provides that:

(1) The parties are free to agree what is to happen in the event of a failure of the procedure
for the appointment of the arbitral tribunal.
There is no failure if an appointment is duly made under section 17 (power in case of default
to appoint sole arbitrator), unless that appointment is set aside.
(2) If or to the extent that there is no such agreement any party to the arbitration agreement
may (upon notice to the other parties) apply to the court to exercise its powers under this
section.
(3) Those powers are
o (a) to give directions as to the making of any necessary appointments;
o (b) to direct that the tribunal shall be constituted by such appointments (or any one or
more of them);
o (c) to revoke any appointments already made;
o (d) to make any necessary appointments itself.
(4) An appointment made by the court under this section has effect as if made with the
agreement of the parties.
(5) The leave of the court is required for any appeal from a decision of the court under this
section.

Section 18 will apply where a party has failed to respond to a notice requesting agreement to the
appointment of a sole arbitrator under section 16(3). The claimant should wait for the expiry of the
period given for agreeing on an appointment before applying to the court. If a notice does not
clearly inform the respondent of what is being asked, the court may refuse to intervene until the
respondent has been given a more informed opportunity to act. An application under section 18 in
relation to a maritime arbitration should be made by way of an arbitration claim form to the
Commercial Court or the Mercantile List (see the flow charts for an arbitration application at
Appendix L). If the respondent is resident outside the jurisdiction and declines to authorise

solicitors to accept service within the jurisdiction then it will probably be necessary to obtain leave
from the court to serve out of the jurisdiction under Part 6 of the Civil Procedure Rules.
Relief under section 18 is discretionary and the court must consider whether an appointment
would be appropriate in the circumstances of the case.26 The court, however, should err on the side
of constituting the tribunal (thus giving effect to the agreed clause), except in the small number of
cases where the arbitral process cannot result in a fair resolution of the dispute.27 The courts
discretion does not, however, extend to deciding to appoint more than one arbitrator since the
number of arbitrators to be appointed is stipulated by agreement or statute.28 Generally the court
will be keen to implement the parties agreement to arbitrate by making an appointment or giving
directions for the appointment, for instance by an arbitration association.29 However, if a claimant
has failed to make any real effort to obtain the respondents agreement to an appointment or the
existence of an agreement to arbitrate is being challenged, the court may refuse to make an
appointment.30 In The Sargasso,31 one of the reasons Hobhouse J gave for refusing to appoint an
arbitrator was that the matters in dispute were already the subject of pending court proceedings
between the claimant and another party. However, the courts have not adopted a consistent
approach in this regard. In Atlanska Plovidba,32 the fact that proceedings had already been
commenced in Spain did not prevent the court exercising its discretion pursuant to section 18, and
indeed was not considered a strong reason for declining to give effect to what was in effect an
exclusive jurisdiction clause.
As regards other factors that the court will take into consideration in exercising its discretion, case
law provides some guidance. In The Villa,33 Mance J took into account the nature of the dispute
and the availability of the arbitrators proposed by the parties. The court may also take into account
factors such as delay and prejudice which may arise out of an appointment.34 However,
in Atlanska Plovidba, the court made clear that factors normally considered in relation to forum
conveniens (e.g., the location of witnesses) were of scant relevance to the interpretation of
arbitration agreements, particularly international arbitration agreements falling within the scope of
the New York Convention.
In R Durtnell & Sons Ltd v Secretary of State for Trade and Industry 35 a dispute under a building
contract had crystallised by December 1993. There was further correspondence and in July 1997
the claimants made a formal request for arbitration, which the DTI rejected on grounds of delay.
Judge Toulmin QC allowed the claimants application for the appointment of an arbitrator under
section 18 of the 1996 Act. He held that the court has a discretion whether or not to intervene
under section 18. It should refuse to intervene if it considers that it would be impossible to obtain
a fair resolution of the dispute without undue delay or expense. In the present case the delay was
not such that it would be wrong for the court to intervene.
A more surprising case was Indescon Ltd v Ogden 36 where ten years elapsed between the issuing
of a notice of arbitration and the appointment of an arbitrator but the respondent did not claim that
the delay caused prejudice. Wilcox J considered that the right to apply for appointment of an
arbitrator was not lost with the passage of time. There was no express provision that the parties
should proceed without delay in appointing an arbitrator, and there were no grounds for implying
such a term into the contract.

Section 18 of the 1996 Act also gives the court power to revoke any appointment already made.
This power was intended to enable the court to act where one of the parties could claim unfair
treatment on the ground that his arbitrator had been imposed on him by the court while the other
had been able to choose his own arbitrator.37 It remains unclear why the term revoke is used in
section 18. The term set aside is used in section 17 but both terms would appear to have the
same effect. Under section 19 of the 1996 Act the court will take into account the parties
agreement as to the arbitrators qualifications in deciding whether and how, to exercise its powers
under section 18 (this provision follows from Article 11(5) of the Model Law).

Where two or three arbitrators are to be appointed


An arbitration agreement providing for two or three arbitrators offers the advantage that each
party can choose its own arbitrator and an easy method is usually available for progressing the
arbitration where there has been default in appointment. Section 17 of the 1996 Act provides a
simple default procedure in cases involving two parties where each party is to appoint an
arbitrator. (In other cases section 18 would apply.) It enables a party to appoint its arbitrator as
sole arbitrator where the other party has failed to appoint an arbitrator. Sub-section 17(3) enables
the party in default to apply to the court to set aside the default appointment. The grounds for
exercising the power to set aside an appointment are not set out. The court would have a wide
discretion to take into account the specific circumstances of the case and also the parties
intentions.38 The factors most likely to be relevant are whether the respondent had been given the
requisite notice to justify a default appointment and if the appointment was within the terms of the
arbitration agreement. The time limits for enabling the respondent to make his own appointment
under section 16 may be extended by the court under section 79 of the Act, but in the ordinary
case time would not be extended.39 Section 17 provides that:

(1) Unless the parties agree otherwise, where each of two parties to an arbitration agreement
is to appoint an arbitrator and one party (the party in default) refuses to do so, or fails to do
so within the time specified, the other party, having duly appointed his arbitrator, may give
notice in writing to the party in default that he proposes to appoint his arbitrator to act as sole
arbitrator.
(2) If the party in default does not within 7 clear days of that notice being given(a) make
the required appointment, and (b) notify the other party that he has done so.
(3) Where a sole arbitrator has been appointed under subsection (2) the party in default may
(upon notice to the appointing party) apply to the court which may set aside the appointment.

The procedure set out in section 17 for a default appointment will apply where there has been a
breakdown in the agreed or statutory procedure for appointment and there is no agreed mechanism
for default appointments. A failure of the statutory appointment procedure will arise where the
respondent has failed (or refused) to appoint his own arbitrator within the time specified (at least
14 days) in a notice given under section 16 of the 1996 Act (see above on the procedure for
appointment).
The claimant must then serve a further notice that he proposes to appoint his arbitrator to act as
sole arbitrator. The notice should state that if the party does not make the required appointment
and also notify the claimant of the appointment within seven clear days, the claimant may appoint

his arbitrator as sole arbitrator.40 This will ordinarily involve returning to the arbitrator to obtain
his consent to act as sole arbitrator and giving the respondent notice that the arbitrator originally
appointed is now to act as sole arbitrator. The requirements of both sections 16 and 17 should be
carefully observed, otherwise the default appointment risks being set aside under section
17(3).41 However, the court will not unravel a default appointment that has been made according
to these requirements or the parties agreement.
In Minermet SpA v Luckyfield Shipping Corporation,42 M, a ship charterer, applied for an
extension of time for the appointment of an arbitrator pursuant to section 79 of the 1996 Act. Ms
agreement with L had contained an arbitration clause permitting each party to nominate an
arbitrator within 14 days of being informed that the other party had done so. This clause provided
that the two arbitrators thus appointed would then themselves appoint a third arbitrator, resulting
in a three-person tribunal. The clause further provided that if a party failed to appoint an arbitrator
then the decision of the single arbitrator appointed should be final. M commenced a claim against
L, but failed to appoint an arbitrator within 14 days. L nominated O as its arbitrator and therefore,
Ls lawyers asserted that O would be sole arbitrator. M then purported to appoint S as its
arbitrator. Subsequently, O ruled he had been properly appointed as sole arbitrator and M
challenged this, claiming there had been a serious irregularity, namely a failure to comply with the
general duty of fairness laid down by section 33 of the 1996 Act. M also contended that O lacked
substantive jurisdiction to make the ruling that he had jurisdiction and sought an extension of time
for the appointment of its arbitrator pursuant to section 79 of the 1996 Act.
The court refused the application for an extension of time, on the grounds that the parties had
arrived at their own agreement as to the arbitration procedure set out in the arbitration clause.
Section 17 of Arbitration Act 1996 had no application, since it only applied unless the parties
otherwise agree. The terms of the arbitration clause were clear and valid, especially given the
absence of any waiver by L or its lawyers of Ls right to adopt the procedure set out therein. The
appointment of O as sole arbitrator was therefore valid, given the expiry of the 14-day period.
There was no obligation to agree to the late appointment of an arbitrator by the defaulting party,
nor was there any risk of substantial injustice arising from the appointment of O as sole
arbitrator so as to justify any extension of time.

Where there are to be more than three arbitrators and


other cases
Section 18 allows for application to court for a default appointment in cases where the parties
have not agreed on the default procedure and where the case does not fall within section 17 (i.e.,
each party is to appoint his own arbitrator).

5. APPOINTMENT OF UMPIRES
Arbitration clauses in shipping contracts often provide for the appointment of two arbitrators and
an umpire in the case of any disagreement. The role of the umpire is to take over decision making
from the disagreeing arbitrators and act as if he were sole arbitrator.43 Once the arbitrators have
disagreed and referred the dispute to an umpire they are no longer able to make binding decisions
(it is said that they are functus officio). In commodity arbitrations it used to be common practice

that if the dispute was referred to an umpire, the original arbitrators would act as advocate on
behalf of the parties who appointed them. In maritime arbitrations this practice has not applied for
many years.44Instead the original arbitrators will ordinarily cease to act in the arbitration once they
have referred the dispute to the umpire.
Section 16(6) of the 1996 Act will apply for the appointment of umpires in the absence of
agreement by the parties on the procedure for appointment. It provides that:
If the tribunal is to consist of two arbitrators and an umpire

(a) each party shall appoint one arbitrator not later than 14 days after service of a request in
writing by either party to do so, and
(b) the two so appointed may appoint an umpire at any time after they themselves are
appointed and shall do so before any substantive hearing or forthwith if they cannot agree on
any matter relating to the arbitration.

Section 21 of the 1996 Act makes clear that the parties are free to agree on the functions of the
umpire; in particular whether he is to attend the proceedings and when he is to replace the other
arbitrators. Unless agreed otherwise, the umpire should attend the proceedings (i.e., oral hearings)
and should be supplied with the same documents as the arbitrators. This will save time and money
by avoiding the need for a re-hearing if the original arbitrators disagree. The umpire should not,
however, participate in decision making or drawing up of the award unless the arbitrators
disagree.45 Paragraph 9 of the LMAA Terms largely follows the statutory scheme except that it
expressly provides that the umpire may take part in the hearing (as opposed to merely attending it)
and may also deliberate with the original arbitrators.46 This means that the umpire may ask
questions in the hearing and join the arbitrators in their discussions over decision making. He may
therefore influence the decision making even if he does not have the power actually to make
decisions. In practice it is very common for the arbitrators to ask the parties to agree (shortly
before the hearing, or even at the hearing itself) that the umpire should be treated as a third
arbitrator because he can then participate fully in the decision making.
An arbitration agreement contains an implied term empowering two arbitrators to appoint an
umpire before they disagree,47 and in the absence of agreement otherwise they will be required to
appoint an umpire before a substantive hearing.48 The reference in section 16(6)(b) to a
substantive hearing is probably intended to distinguish a hearing on the merits of the dispute
from a hearing on an interlocutory matter (e.g., security for costs). Where the arbitration is on
documents alone the arbitrators invariably try to save costs by waiting until a disagreement has
arisen before appointing an umpire.
It would appear that the dispute should be referred to an umpire if the arbitrators fail to agree on
an interlocutory matter. (The reference to a matter in section 16(6) makes it clear that an umpire
should be appointed if the arbitrators disagree on any single issue.49) If deadlock occurs at an
interlocutory stage the umpire will normally take over the entire arbitration unless the parties
agreed that the original tribunal should resume authority. In choosing an umpire the arbitrators
must consider who would be suitable: random selection is not valid unless it is from a panel of
potential umpires that have already been agreed as suitable.50

Default appointments of umpires


If the arbitrators disagree but fail to give notice of their disagreement or fail to appoint an umpire,
any of the parties to the arbitration may apply to court under sections 18 or 21(5) of the 1996 Act
for an order that an umpire should be appointed to replace the arbitrators as the tribunal.

6. SUBSTITUTING ARBITRATORS AND UMPIRES


A vacancy in the tribunal may arise for a number of reasons, in particular: resignation, refusal to
act, removal by the court, incapacity or death. The parties agreement is the starting point for
dealing with a vacancy. The LMAA Terms provide for filling vacancies where an arbitrator
resigns because he is unable to provide a hearing date within a reasonable time (see Chapter 11).
In the absence of such agreement, section 27 of the 1996 Act provides a clear and comprehensive
code applicable to appointments where the parties have not agreed on how to deal with a vacancy.
It provides that:

(1) Where an arbitrator ceases to hold office, the parties are free to agree
o (a) whether and if so how the vacancy is to be filled,
o (b) whether and if so to what extent the previous proceedings should stand, and
o (c) what effect (if any) his ceasing to hold office had on any appointment made by him
(alone or jointly).
(2) If or to the extent that there is no such agreement, the following provisions apply.
(3) The provisions of section 16 (procedure for appointment of arbitrators) and 18 (failure of
appointment procedure) apply in relation to the filling of the vacancy as in relation to an
original appointment.
(4) The tribunal (when reconstituted) shall determine whether and if so to what extent the
previous proceedings shall stand.
This does not affect any right of a party to challenge those proceedings on any ground which
had arisen before the arbitrator ceased to hold office.
(5) His ceasing to hold office does not affect any appointment by him (alone or jointly) of
another arbitrator, in particular any appointment of a chairman or umpire.

Section 27 is modelled on Article 15 of the Model Law and will apply when an arbitrator ceases
to hold office. This would cover death, resignation and removal by the court.51 In summary, the
parties can agree on how to fill a vacancy in the tribunal but, in the absence of such an agreement
in writing,52 section 27 provides that the procedure for appointing a substitute should be the same
as that by which the original arbitrator was appointed. The parties may apply to court under
section 18 if there is default in this appointment procedure and the court will generally give effect
to the parties agreement on the original appointment procedure as far as possible.53
The reconstituted tribunal may decide whether and if so to what extent, the previous proceedings
should stand.54 Existing interim awards would probably remain binding but the status of previous
proceedings may be disputed. In any substantial arbitration the parties would be well advised to
agree in advance the terms on which the arbitration may proceed (both as to replacing the
arbitrator and also as to the status of the previous proceedings). They might even attempt to obtain
insurance to cover the risk of increased costs.

7. REMEDIES FOR DEFECTIVE APPOINTMENTS


Where a party has reason to argue that a tribunal has been incorrectly appointed it may seek to
challenge the appointment. The main methods of challenge in relation to appointments are:

(1) applying to the court to set aside the default appointment of a sole arbitrator under section
17(3) of the 1996 Act;
(2) applying to the tribunal itself for a ruling on whether the tribunal has been properly
constituted under section 30(1)(b) of the Act; and then possibly applying to the court to
dispute the tribunals ruling under section 67 of the Act;
(3) applying to the court for a ruling on whether the tribunal has been properly constituted
under section 32 of the Act if that sections conditions are satisfied (see Chapter 6 above).

A party could also object to an appointment being made under section 18. The grounds for
challenging an appointment under sections 17 and 18 of the Act are not listed and the court would
have a wide discretion as to whether or not an appointment should be set aside. The main grounds
for challenge might include that the appointment:

(a) was made without the required notice;


(b) was outside the terms of the arbitration clause; or
(c) could be challenged on grounds of bias or unsuitability.

Challenge to the appointment of an arbitrator could also be made by seeking his removal under
section 24 on the grounds of:

(a) impartiality;
(b) lack of qualification;
(c) physical or mental incapacity.

Permission to appeal to the Court of Appeal is required for any appeals from judicial remedies
governing appointment.55
A party must act promptly in making any objection to an appointment as failure to do so may
preclude an objection being raised at a later stage56 (see section 73 discussed in more detail in
Chapter 11). This means that challenges to the appointment of an arbitrator should generally be
made as soon as the ground for objection comes to light. Subject to this substantial limitation,
challenge is available after an award is made by:

(a) challenging the award on the ground of lack of substantive jurisdiction (see sections 67
and 72 of the 1996 Act discussed in Chapter 6);
(b) challenging the award for serious irregularity (see section 68 discussed in Chapter 22).57

Apart from relief sought under section 72, these challenges are subject to a 28-day time limit from
the date of the award, or if there has been any arbitral process of appeal or review, from the date
when the applicant was notified of the result of that process (see section 70(3)).

8. COMMENCING ARBITRATION FOR THE PURPOSE OF TIME LIMITS

The steps required to make a valid appointment for the purposes of ensuring that an arbitrator has
power to bind the parties (i.e., for the purposes of jurisdiction) are not the same as the steps
necessary for a claimant to interrupt a time limit for making a claim. The statutory definition of
the commencement of an arbitration for the purpose of statutory time limits remains largely
unchanged under the 1996 Act. Section 14 provides that:

(1) The parties are free to agree when arbitral proceedings are to be regarded as commenced
for the purposes of this Part and for the purposes of the Limitation Acts.
(2) If there is no such agreement the following provisions apply.
(3) Where the arbitrator is named or designated in the arbitration agreement, arbitral
proceedings are commenced in respect of a matter when one party serves on the other parties
a notice in writing requiring him or them to submit that matter to the person so named or
designated.
(4) Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings
are commenced in respect of a matter when one party serves on the other party or parties
notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment
of an arbitrator in respect of that matter.
(5) Where the arbitrator or arbitrators are to be appointed by a person other than a party to the
proceedings, arbitral proceedings are commenced in respect of a matter when one party gives
notice in writing to that person requesting him to make the appointment in respect of that
matter.

Paragraph 4 of the LMAA Terms makes clear that section 14 of the 1996 Act shall apply for the
purpose of determining what dates arbitral proceedings are to be regarded as having commenced.

What notice is required to commence arbitration?


Section 14 was intended to restate the previous law and the notice requirement closely follows the
wording of the previous legislation.58 In the absence of any other agreement, a party will only
have effectively interrupted time for the purpose of statutory time limits if he gives the other side
notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of
an arbitrator in respect of the matter. There has been considerable case law on this issue but it is
now clear that the courts will not take a strict or technical approach in interpreting a notice
purporting to commence arbitration. They will be influenced by the fact that notices to commence
arbitration are often given by parties whose first language is not English or business people who
have little understanding of the technicalities of English law.59 Moore Bick J in Atlanska
Plovidba 60 stated that If a notice of arbitration is to be effective, it must identify the dispute to
which it relates with sufficient particularity and must also make it clear that the person giving it is
intending to refer the dispute to arbitration, not merely threatening to do so if his demands are not
met. It is likely that the court will not require an express request for the appointment of an
arbitrator: instead it will look to see whether, regardless of its strict language, the notice makes
clear to the addressee that the claimant is invoking the arbitration agreement and requires steps to
be taken to constitute a tribunal.
In Seabridge Shipping AB v AC Orssleffs EFTFs A/S,61 Thomas J held that a notice sent to the
claimants arbitrator, but also copied to the respondents, asking them to attend to the appointment

of their arbitrator was sufficient to amount to commencement with section 14. In earlier case law,
there had been two distinct schools of thought and Thomas J expressly avoided entering the debate
as to which strand in earlier case law adopted the correct approach. He emphasised that section 14
should be interpreted broadly and flexibly. A strict and technical approach to this section has no
place in the scheme of the 1996 Act. Notices are given by international traders and businessmen
who often use shorthand expressions or ways of doing things, which are objectively clear in
giving notice to the other party of a reference and of the requirement to appoint an
arbitrator.62 He refused to rely on the pre-1996 Act cases. Instead he suggested that in
interpreting the 1996 Act, the court should look to its language and not have recourse to the earlier
law unless the Act did not cover the point or there was a specific point upon which it would be
desirable to examine the earlier case law.
The House of Lords endorsed Thomas Js approach to the relevance of pre-1996 Act cases
in Lesotho Highlands Authority v Impregilo SA 63 and his approach on section 14 has also been
followed in subsequent cases.64 This may render the earlier case law somewhat academic.
However, the following pre-1996 Act case law has also been relied upon in those cases to support
what now appears to be the prevailing view.
In Nea Agrex SA v Baltic Shipping Co,65 the claimants had sent a notice stating, please advise
your proposals in order to settle this matter, or name your arbitrators. The Court of Appeal
considered that this was sufficient to commence arbitration for the purposes of the applicable
Limitation Act (worded similarly to section 14 of the 1996 Act), even though the notice was
conditional and the arbitration clause was to be construed as providing only for a sole arbitrator.
Lord Denning MR held that a notice requiring a matter to be referred to arbitration would include
a request by implication to agree to the appointment of an arbitrator.66 Shaw LJ considered that
it was necessary for the notice in substance to communicate that the claimant was invoking the
arbitration agreement and required the other party to do something towards setting the arbitration
in train.67
In The Baltic Universal,68 the claimants sent a notice notifying the shipowners P&I Club that they
had appointed an arbitrator in respect of the parties dispute. Moore-Bick J suggested that a notice
would be sufficient to commence arbitration if it makes it clear by whatever language that the
sender is invoking the arbitration agreement and is requiring the recipient to take steps in response
to enable the tribunal to be constituted.69
In The Smaro,70 the claimants had sent a notice to their arbitrator, copied to the other side, asking
him to accept appointment. Rix J decided that this was sufficient to commence arbitration since it
was an implicit request to the other side to appoint an arbitrator. He considered that there were
strong policy reasons in favour of a more flexible commercial approach. He rejected a strict or
formulaic approach, holding instead that the question is whether the notice sufficiently, or in
substance, makes clear that the respondent is expected to act on the claimants submission of a
dispute to arbitration.
By contrast, the more restrictve view found in Vosnoc Ltd v Trans Global Projects Ltd 71 is less
likely to be followed. Here, HHJ Raymond Jack QC held that a notice stating that by this letter
the dispute between our respective companies is referred to the arbitration of three arbitrators in

London was not sufficient to amount to commencement of arbitration within the meaning of
section 14.
The court will probably take a flexible approach in giving effect to agreements as to what is
required to commence arbitration for the purpose of section 14, for instance paragraph 10 of the
LMAA Terms would probably cover new claims that arise subsequently to the tribunals
appointment. However, it appears that section 14 will be treated as a comprehensive code in the
absence of such agreement.72
If a party failed to comply with the requirements of section 14 (or an agreed procedure) but the
other side appointed an arbitrator or continued to participate without objection in the arbitration
after the appointment of a sole arbitrator by default, then it is likely that the respondent would be
precluded from raising objections based on an irregularity in the tribunals appointment.73 The
same rules on giving notice for commencing arbitration will apply to interrupt the statutory time
limit for commencing a counterclaim.74

Service of the notice


The parties may agree on the method of serving notices for the purpose of commencing
arbitration, but in the absence of such agreement in writing, sections 76(3) to (5) of the 1996 Act
explain how service is effected. Essentially the notice must be served by effective means, which
includes delivery by post to the addressees last known business address or, if a company, its
registered or principal office. It would probably also include fax, telex and email if these were
reasonably effective in the circumstances.
In Bernuth Lines Ltd v High Seas Shipping Ltd 75 the claimant sent an email asking the respondent
to agree to the appointment of an arbitrator. The email was sent to an address that had been
published as the respondents only address in Lloyds Maritime Directory and on their website. It
(and subsequent emails) generated a receipt confirming delivery to the respondent but due to an
internal failing the emails had been ignored. Cooke J held that the arbitration had been validly
commenced, email is habitually used by businessmen and having held out the email address as its
only email address the respondent could not be surprised to find official emails sent to it.
If the LMAA Terms apply (see below) and solicitors have been authorised to act in connection
with the proceedings then service on the solicitor would also be sufficient (see paragraph 27 of the
LMAA Terms).

Contractual time-bars
Where there is a contractual time-bar it is more common for the contract to set out the steps
required to commence arbitration, or to take some other required step within the given time. For
instance, the Centrocon arbitration clause requires the claimant to make a written claim and
appoint an arbitrator within the given time. The courts discretion to extend contractual time limits
is discussed in Chapter 8. Where there is an arbitration clause, the commencement of arbitration
will usually amount to suit for the purposes of interrupting the Hague Rules time limits.
However, commencing court proceedings or a foreign arbitration within time would probably be

ineffective to stop time running where the contract provides for arbitration in London since
incompetent proceedings do not amount to suit.76
Paragraph 3(b) of the LMAA Small Claims Procedure (2006) provides that payment of the Small
Claims fee, as fixed from time to time by the LMAA within 14 days of agreement being reached
upon a sole arbitrator under paragraph 2(a) shall be a condition precedent to the valid
commencement of proceedings under the Small Claims Procedure. It is arguable that if an
arbitration clause expressly provided for the LMAA Small Claims Procedure then this clause
could operate as a time-bar for any claim subject to the Procedure. It is doubtful, however, that it
would be construed as such. First, paragraph 2(a) provides that if a dispute has arisen and the
parties have agreed that it should be referred to arbitration under the Small Claims Procedure then,
unless a sole arbitrator has already been agreed on, either party may start the arbitration by giving
notice to the other party requiring him to join in appointing a sole arbitrator. Second, it would be
difficult to use paragraph 3(b) as a time-bar if it is unclear whether or not the claim is within the
Small Claims Procedure. However, claimants should err on the side of caution if a claim might be
time-barred: possibly making a payment of fees to the tribunal without prejudice as to whether the
claim is subject to the Procedure. If the parties have not agreed on the Small Claims Procedure
then the normal method for commencing arbitration should be sufficient to interrupt the limitation
period.

9. TERMS OF APPOINTMENT
An arbitrator may be validly appointed without prior agreement as to the terms upon which he will
act. It is often agreed that an appointment is made expressly pursuant to the Arbitration Acts.
These words probably have little legal effect since if the seat of the arbitration is in England and
Wales, any appointment of an arbitrator will ordinarily be governed by the 1996 Act.77 A
reference to the 1950 Arbitration Act and any subsequent alterations would be treated as a
referring to the 1996 Act.78 An arbitration clause may specify the rules according to which the
arbitration is to be conducted (e.g., by referring to the LMAA Terms). This will amount to an
agreement binding the parties and the arbitrator (although the arbitrator could refuse or resign the
appointment if, exceptionally, he objected to those rules79). In the absence of provision in the
arbitration clause, or an agreement on procedure made on appointment, the parties are free to
adopt any procedure unless it conflicts with the mandatory provisions of the 1996 Act (in
particular, section 33).
Maritime arbitrators commonly accept appointment on LMAA Terms and this will certainly mean
that such appointments are subject to those terms (e.g., concerning the right to booking fees).
Accepting the appointment as such may not, in itself, mean that the arbitration is subject to the
LMAA Terms and their application to an arbitration is discussed in detail in Chapter 1. Terms of
payment are sometimes specifically agreed on appointment (typically by non-LMAA arbitrators
such as barristers) or by reference to arbitration rules to which the tribunal and parties agree. It is
not common for LMAA arbitrators to make express agreements on fees at appointment. In the
absence of an agreement as to fees the arbitrator is entitled to a reasonable fee.80
1 See Chapter 9 on extending the time for commencing arbitration.

2 Itex Shipping Pte Ltd v China Ocean Shipping Co, The Jing Hong Hai [1989] 2 Lloyds Rep
522 at 524 per Steyn J.
3 LMAA Terms, paragraph 8.
4 Paragraphs 78-79 of the DAC Report.
5 Laertis Shipping Corporation v Exportadora Espanola de Cementos Portland SA, The
Laertis [1982] 1 Lloyds Rep 613.
6 Atlanska Plovidba v Consignaciones Asturianas SA [2004] EWHC 1273 (Comm); [2004] 2
Lloyds Rep 109 at paragraph 17.
7 Tradax Export SA v Volkswagenwerk AG [1970] 1 Lloyds Rep 62, followed in Charles M
Willie & Co Ltd v Ocean Laser Shipping Ltd [1999] 1 Lloyds Rep 225 at 236.
8 Bruce Harris, Michael Summerskill and Sara Cockerill, [1993] 9 Arbitration International 275
at 281.
9 Atlanska Plovidba v Consignaciones Asturianas SA [2004] EWHC 1273 (Comm); [2004] 2
Lloyds Rep 109.
10 Farrar v Cooper (1890) 44 Ch D 323.
11 Section 76(1) of the 1996 Act.
12 Bernuth Lines Ltd v High Seas Shipping Ltd [2005] EWHC 3020 (Comm); [2006] 1 Lloyds
Rep 537.
13 Tradax Export SA v Volkswagenwerk AG [1970] 1 Lloyds Rep 62. There may be special cases
where an arbitrator has given consent in advance.
14 Casillo Granni v Napier Shipping Co, The World Ares [1984] 2 Lloyds Rep 481 where claims
not contemplated in the original appointment subsequently became time-barred.
15 Section 15(2) of the 1996 Act.
16 Section 16(5) requires 14 days to be given from service of the request to appoint. The required
method of service of a notice can be agreed but will usually be governed by section 76. The
calculation of time will be governed by section 78 unless the parties agree otherwise.
17 Thomas v Fredericks (1847) 10 QB 775.
18 Tradax Export SA v Volkswagenwerk AG [1970] 1 Lloyds Rep 62, followed in Charles M
Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd, The Smaro [1999] 1 Lloyds Rep 225.
19 Section 16(5) of the 1996 Act.
20 The NYPE form specifies New York as the venue but London may be substituted.
21 Section 20(3) and (4) of the 1996 Act.
22 See section 9 below on application of the LMAA Terms and Fal Bunkering v Grecale
Incorporated [1990] 1 Lloyds Rep 369.

23 Cf. Termarea SRL v Rederiaktibolaget Sally, The Dalny [1979] 2 Lloyds Rep 439, a case
under the old section 9 of the 1950 Act under which a reference to three arbitrators was deemed to
have effect as if it provided for appointment of an umpire and not a third arbitrator. Mocatta J
relied on section 9 and held that the award of two arbitrators was valid even though no third
arbitrator had been appointed as agreed. See also Fletamentos Maritimos SA v Effjohn
International BV [1995] 1 Lloyds Rep 311.
24 Section 16(7) of the 1996 Act.
25 Section 15(3) of the 1996 Act.
26 Villa Denizcilik Sanayi VE Ticaret AS v Longen SA, The Villa [1998] 1 Lloyds Rep 195; R
Durtnell & Sons Ltd v Secretary of State for Trade and Industry [2001] 1 Lloyds Rep 275.
27 Atlanska Plovidba v Consignaciones Asturianas SA [2004] EWHC 1273 (Comm); [2004] 2
Lloyds Rep 109, paragraph 24 per Moore-Bick J.
28 Villa Denizcilik Sanayi VE Ticaret AS v Longen SA, The Villa [1998] 1 Lloyds Rep 195 at
198.
29 R Durtnell & Sons Ltd v Secretary of State for Trade and Industry [2001] 1 Lloyds Rep 275;
See also Atlanska Plovidba v Consignaciones Asturianas SA [2004] EWHC 1273 (Comm); [2004]
2 Lloyds Rep 109, paragraph 24 per Moore-Bick J.
30 See, by analogy, Al-Naimi v Islamic Press Agency Inc [2000] 1 Lloyds Rep 522 for the courts
approach when jurisdictional issues arise on an application for a stay.
31 Petredec Ltd v Tokumaru Kaiun Co Ltd [1994] 1 Lloyds Rep 162.
32 Atlanska Plovidba v Consignaciones Asturianas SA [2004] EWHC 1273 (Comm); [2004] 2
Lloyds Rep 109.
33 Villa Denizcilik Sanayi VE Ticaret AS v Longen SA, The Villa [1998] 1 Lloyds Rep 195.
34 R Durtnell & Sons Ltd v Secretary of State for Trade and Industry [2001] 1 Lloyds Rep
275; Frota Oceanica v Steamship Mutual Underwriting Association, The Frotanorte [1996] 2
Lloyds Rep 461 and Secretary of State for Foreign and Commonwealth Affairs v Percy Thomas
Partnership [1998] 65 Con LR 11 (decided under the 1950 Act).
35 [2001] 1 Lloyds Rep 275. See the comments of Mustill & Boyd, 2001 Companion, p. 285
querying whether the delay in commencing arbitration should be penalised by the courts.
36 [2004] EWHC 2326; [2005] 1 Lloyds Rep 31.
37 Paragraph 88 of the DAC Report.
38 Paragraph 85 of the DAC Report suggests that the court would take into account the overall
philosophy of the Act, this is probably represented by the principles set out in section 1 of the
Act.
39 Paragraph 81 of the DAC Report.

40 In the absence of agreement otherwise the computation of seven clear days will be assessed in
accordance with section 78(4) and (5) of the 1996 Act.
41 Ministry of Food Government of Bangladesh v Bengal Liner Ltd, The Bengal Pride [1986] 1
Lloyds Rep 167 is an example of possible problems.
42 [2004] EWHC 729; [2004] 2 Lloyds Rep 348.
43 Section 21(4) of the Act.
44 Paragraph 3 of the LMAA Terms makes clear that an original arbitrator is in no sense to be
considered as the representative of his appointer.
45 Section 21(4) of the 1996 Act, see Fletamentos Maritimos SA v Effjohn International
BV [1995] 1 Lloyds Rep 311 at 313.
46 Paragraph 9(d) of the LMAA Terms. This provision was probably a reaction to challenges such
as that in Fletamentos Maritimos v Effjohn International BV [1997] 2 Lloyds Rep 302. It was not
intended that section 21 of the 1996 Act would allow umpires to take part in proceedings
(Paragraph 92 of the DAC Report).
47 Fletamentos Maritimos SA v Effjohn International BV [1995] 1 Lloyds Rep 311. Section
16(6)(b) of the 1996 Act reflects the common law position.
48 Section 16(6)(b) of the 1996 Act.
49 DAC Supplementary Report on the Arbitration Act 1996, paragraph 22.
50 Mustill and Boyd, 2nd edn, p 192.
51 See Mustill & Boyd, 2001 Companion, p. 294. Article 15 of the Model Law covers withdrawal
and the DAC (paragraph 117 of the DAC Report) intended that section 27 should reflect that
provision, accordingly it probably covers resignation.
52 Section 5 of the 1996 Act.
53 Section 27(3), see Federal Insurance Co v Transamerica Occidental Life Insurance Co [1999]
2 Lloyds Rep 286.
54 Section 27(4) of the 1996 Act.
55 See sections 17(4), 18(5), 21(6), 24(6), 32(6) and 67(4).
56 Section 73 of the 1996 Act. A party could possibly preserve its right to object on grounds of
jurisdiction (see Chapter 6) if it took no part in the arbitration, see section 72.
57 Although defects in the appointment process are more likely to fall within section 67
see Bernuth Lines Ltd v High Seas Shipping Ltd [2005] EWHC 3020 (Comm); [2006] 1 Lloyds
Rep 537.
58 Paragraph 76 of the DAC Report and section 27(3) of the 1939 Limitation Act and section
34(3) of the 1980 Limitation Act.

59 Allianz Versicherungs-Aktiengesellschaft v Fortuna Co Inc, The Baltic Universal [1999] 1


Lloyds Rep 497 at 503; see also Seabridge Shipping AB v AC Orssleffs EFTFs A/S [1999] 2
Lloyds Rep 685 at 690 and Atlanska Plovidba vConsignaciones Asturianas SA [2004] EWHC
1273 (Comm); [2004] 2 Lloyds Rep 109 at para 10.
60 Atlanska Plovidba v Consignaciones Asturianas SA [2004] EWHC 1273 (Comm); [2004] 2
Lloyds Rep 109.
61 [1999] 2 Lloyds Rep 685.
62 Ibid. at 690.
63 [2005] UKHL 43; [2006] 1 AC 221.
64 Atlanska Plovidba v Consignaciones Asturianas SA [2004] EWHC 1273 (Comm); [2004] 2
Lloyds Rep 109, paragraph 17, Taylor Woodrow Construction v RMD Kwikform Ltd [2008]
EWHC 825 (TCC), Bulk & Metal Transport (UK) LLP vVoc Bulk Ultra Handymax Pool
LLC [2009] EWHC 288 (Comm); [2009] 1 Lloyds Rep 418.
65 [1976] 2 Lloyds Rep 47, Bulk & Metal Transport (UK) LLP v Voc Bulk Ultra Handymax Pool
LLC [2009] EWHC 288 (Comm); [2009] 1 Lloyds Rep 418 also involved a conditional notice.
66 [1976] 2 Lloyds Rep 47 at 51, Goff LJ agreed at 55 but did not consider it necessary to decide
the point.
67 [1976] 2 Lloyds Rep 47 at 58.
68 Allianz Versicherungs-Aktiengesellschaft v Fortuna Co Inc, The Baltic Universal [1999] 1
Lloyds Rep 497.
69 Ibid., at 503.
70 Charles M Willie & Co v Ocean Laser Shipping Ltd [1999] 1 Lloyds Rep 225.
71 [1998] 1 Lloyds Rep 711.
72 Seabridge Shipping AB v AC Orssleffs EFTFs A/S [1999] 2 Lloyds Rep 685 at 691.
73 Section 73 of the 1996 Act.
74 Interbulk Ltd v Ponte dei Sospiri Shipping Co, The Standard Ardour [1988] 2 Lloyds Rep
159.
75 [2005] EWHC 3020 (Comm); [2006] 1 Lloyds Rep 537.
76 For example, The Havhelt [1993] 1 Lloyds Rep 523 at 525 and Government of Sierra
Leone v Marmaro Shipping Co Ltd, The Amazona [1989] 1 Lloyds Rep 130 at 135; Thyssen
Inc v Calypso Shipping Corporation SA [2000] 2 Lloyds Rep 243.
77 Sections 2(1) and 4 of the 1996 Act.
78 The Villa, Villa Denizcilik Sanayi VE Ticaret AS v Longen SA [1998] 1 Lloyds Rep 195.
79 In relation to resignation see Chapter 11 on the arbitrator.

80 Section 28(1) of the 1996 Act and see Chapter 20 on fees.

Chapter 11

The Arbitrator
The Arbitrator

1. The arbitrators status


2. Qualifications
3. Bias
4. Remedies against an arbitrator
5. Loss of the right to object to an arbitrator
6. Arbitrators immunity
7. Resignation of an arbitrator

1. THE ARBITRATORS STATUS


The relationship between the parties to an arbitration and the tribunal is most commonly analysed
as a contract. In broad terms this analysis is appropriate, as an arbitrators jurisdiction is based on
consensus and an arbitrators appointment is properly treated as an enforceable contract. The
contractual analysis cannot, however, fully explain the role of an arbitrator.1 For example,
regardless of the terms of his appointment he is under a duty to act fairly and impartially between
the parties and to adopt procedures suitable to the circumstances of the case.2 An arbitrator also
enjoys immunity from claims for breach of this duty or any contractual term of his
appointment.3 Furthermore, the relationship between an arbitrator and the party who did not
appoint him cannot easily be analysed as an orthodox contract concluded by acceptance of an
offer.4 In understanding an arbitrators rights and duties it is necessary to consider his judicial role
as well as his contractual relationship with the parties. The courts have analysed the arbitral
process as based on a trilateral contract existing between the two parties and the tribunal, pursuant
to which an arbitrator assumes a quasi-judicial status.5 An arbitrators judicial role in deciding
disputes impartially explains some of the more unusual aspects of his relationship, such as his
immunity and his mandatory duty to act fairly.
In addition to status and contract, restitutionary principles may assist in explaining some aspects
of an arbitrators relationship with the parties.6 If the parties have made no agreement as to the
arbitrators fees, then an arbitrators statutory right to fees and expenses is based on principles of
restitution: he is entitled to reasonable remuneration for services provided to the parties.7

2. QUALIFICATIONS
Anyone can be an arbitrator. No special qualification is required unless the parties have so agreed.
In practice, most maritime arbitrators are experienced professional people who have worked in the
shipping trade (e.g., master mariners, brokers, surveyors, superintendents) or as commercial
lawyers. A number of maritime arbitrators arbitrate full time as a profession.

Qualifications required by the arbitration clause


If an express provision in an arbitration agreement relating to the qualifications or characteristics
of the arbitrator is not complied with, the appointment will fall outside the arbitration agreement
and the arbitrator will lack the power to make the decisions binding on the parties. Although the
position is not entirely clear, failure to comply with a requirement in the arbitration clause for a
particular qualification or attribute might enable the other party to challenge the arbitrators
jurisdiction on the grounds that the tribunal is not properly constituted.8 It is clear though that a
party can apply to remove an arbitrator on grounds that he lacks the qualifications required by the
arbitration agreement under section 24(1)(b). However, a party may lose the right to challenge on
this ground if it fails to raise the objection at the first reasonable opportunity (see below on loss of
the right to object). Contractual requirements relating to qualifications are also relevant in
applications to court for the appointment of arbitrators.9
It is common practice for an arbitration agreement to include express requirements relating to
qualifications, for example that arbitrators shall be engaged in the shipping trade or
commercial men. The courts generally give these provisions a broad interpretation and
deliberately avoid laying down any strict or detailed definition of such terms. The term
commercial man or engaged in the shipping trade would almost certainly cover a full member
of the LMAA engaged in arbitration as his principal occupation.10 Commercial man has a broad
meaning except that it excludes practicing lawyers.11 The term commercial man conversant with
shipping would require the arbitrator to have some experience in the shipping trade. If an
arbitrator was suitably qualified at the date of appointment, then a subsequent change of job, or
retirement, would not in itself disqualify him.12
In The Bede 13 a ship sale agreement provided that arbitrators and umpire shall be commercial
men and not lawyers. The arbitrators appointed a practising barrister as an umpire. Roskill J
allowed a challenge to the umpires award, stating that although it was not necessary to consider
what exactly the words commercial men meant or to define precisely who fell within or without
them, it was clear that they did not include practising lawyers.
In Pando Compania Naviera v Filmo SAS 14 an arbitration clause provided that arbitrators should
be commercial men. The claimants appointed a solicitor, Mr R A Clyde, who had been a fulltime commercial arbitrator for 15 years after leaving practice as a senior partner in the city firm of
his name. He was also a director of various shipping companies. Donaldson J upheld the award,
stating that:

Mr. Clyde was a commercial lawyer before he ceased to practise, but this fact cannot
disqualify him from becoming a commercial man thereafter if he would otherwise be
qualified. I have no doubt that a member of the LMAA practising as a full-time maritime
arbitrator would be regarded by most ship-owners and charterers throughout the world as a
commercial man. The fact that he had also had practical experience of another aspect of the
commercial side of the shipping trade by virtue of having been a director of shipping
companies merely reinforces this view.

In Sumukan Ltd v Commonwealth Secretariat,15 the arbitration agreement required consultation


with Commonwealth governments before any arbitrator was appointed. Failure to comply with
this requirement had the result that the appointment was invalid.

Membership of arbitral organisations


There are numerous arbitral organisations and institutions, for example:

the LMAA;
the Grain and Feed Trade Association (GAFTA);
the London Court of International Arbitration (the LCIA);
the International Chamber of Commerce (ICC); and
the Chartered Institute of Arbitrators.

Some of these organisations, notably the LCIA, ICC and GAFTA, administer arbitrations in
accordance with their rules; typically in relation to appointing arbitrators, arranging timetables and
dealing with fees.
The LMAA does not administer arbitrations: the arbitrators conduct the proceedings without any
direct aid from an administering body (although LMAA Terms provide for the President of the
LMAA to appoint arbitrators in very limited circumstances and about 100 appointments are made
each year, mainly under the Small Claims Procedure). This more independent nature of arbitration
under the LMAA Terms allows it to be more flexible and cuts down on the costs of having the
arbitration administered. Accordingly, the LMAA is not an arbitral institution in the same sense as
the ICC or the LCIA, but it would be treated as an institution under section 74 of the 1996 Act
for the purposes of claiming immunity in respect of making appointments.
The majority of arbitrators conducting London maritime arbitrations are members of the London
Maritime Arbitrators Association (the LMAA). Membership of the LMAA is often a
requirement imposed by the arbitration clause and would require the arbitrators to be full or
supporting members of the LMAA. However, if the arbitration agreement merely provides that
LMAA Terms should apply to the arbitration, this does not mean that only members of the LMAA
can be arbitrators. Some maritime disputes, for instance commodity disputes or those arising
under large-scale shipbuilding contracts, are commonly referred to arbitration under other rules,
for example those of GAFTA or the LCIA. Again, this sort of provision refers to the rules
governing the arbitration and does not in itself require the arbitrators to be members of an
organisation (unless the rules so provide).
The appointment of an arbitrator from one of these organisations will often be conditional on an
agreement that its rules of arbitration will apply to the appointment and to the arbitration (e.g.,
LMAA arbitrators usually accept appointments on the condition that the LMAA Terms apply: see
Chapter 1). Reference of disputes to arbitrators belonging to arbitral organisations, or on condition
that arbitration rules apply, offers significant advantages for the parties. In particular, members of
such organisations will have experience of conducting an arbitration and they will be obliged to
observe the standards of conduct required by their organisation.

Although certain aspects of arbitration rules may not suit the parties entirely (and can usually be
excluded by the contract) they do provide a structure within which the arbitration can progress.
The LMAA Terms are generally flexible and the parties may agree that certain provisions should
be omitted or varied. Such an agreement should be concluded before an appointment is made or as
soon as possible thereafter with notice to the arbitrator.16 If the arbitrator objects to such an
agreement he may refuse the appointment or resign (see below on resignation). In the absence of
agreed arbitration rules, the precise procedure to be adopted will be uncertain. Arbitration rules
also provide some indication of the fees. Booking fees are published in the LMAA Terms and
there is usually some degree of consistency in the rates charged by arbitrators of similar
experience from the same organisation.

3. BIAS
The fundamental principle that a party is entitled to a hearing by an impartial tribunal applies to
arbitration.17 Arbitrators are under a mandatory duty to act impartially as between the parties, and
may be removed if circumstances give rise to justifiable doubt as to their impartiality.18 Awards
may also be challenged on the ground that the arbitrator has failed to act impartially.19 Under
English law, unlike the Model Law and the position under most international arbitration rules,
there is no additional requirement of independence unless the arbitration agreement incorporates
it. The DAC formed the view that in consensual arbitrations where parties ordinarily appoint their
own arbitrators it was neither necessary nor desirable to impose an extra requirement for
independence.20 The DAC gave the example of barristers in chambers at the English Bar as an
example: it is common for barristers to be instructed in cases where one or more of the arbitrators
is at the same chambers. This lack of independence does not, of itself, give rise to any right of
challenge as a matter of English law.21 However, the courts have recognised that a lack of
independence may give rise to the appearance of bias. For example, where a barrister appears in
an arbitration pursuant to a conditional fee agreement, and the arbitrator is a member of the same
chambers, the manner in which that chambers is funded may give rise to a finding of bias.22
Although Article 6 of the European Convention on Human Rights (enacted in English law by the
Human Rights Act 1998) requires an independent and impartial tribunal this has not affected the
interpretation of the 1996 Act since English arbitral practice is regarded as a consensual
derogation from the requirement of independence, and does not breach Article 6.23
In maritime arbitration, a commercial arbitrator is commonly selected by one of the parties on the
basis of personal acquaintance. Often the arbitration agreement may require an arbitrator to have
practised in the same trade as the parties and he may know them. This does not ordinarily create
problems of bias since it is something which the parties must be taken to have had in mind.24 It is
also acceptable for a party to have a continuing relationship with a single arbitrator or for an
arbitrator to be appointed frequently by shipowners or by charterers.
If, however, an arbitrator considers that his relationship with the parties to the dispute may make it
difficult for him to approach the dispute fairly, he should decline appointment (or resign if the
matter comes to light after appointment). If he thinks that it will not influence his judgment but it
may raise doubts as to his impartiality, then it would be prudent for him to make a disclosure of
his interest at the earliest opportunity. Under the LMAA Terms (unlike the ICC Rules) there is no
obligation on an arbitrator to make disclosure of interests which might call into question his

impartiality.25 However, disclosure in such circumstances will avoid the risk of wasted costs since
it will enable an objection to be raised, or waived at the outset (see below on loss of the right to
object). If an objection on the grounds of bias is raised by one of the parties then the arbitrator
may choose to resign as a matter of preference or practice. This would usually be regarded as
reasonable and in no sense an admission of bias. Court challenges based on bias usually only arise
where the parties reach an impasse over the issue of impartiality or one of the parties asserts bias
after an award has been published.

The test for bias


The 1996 Act provides a test for establishing whether bias is established. Section 24(1)(a) of the
Act provides that a party may apply to remove an arbitrator on the grounds that:
the circumstances give rise to justifiable doubts as to his [the arbitrators] impartiality.
The test is objective: the court must be satisfied that the alleged circumstances exist and they
justify any doubts as the arbitrators impartiality.26 Ordinarily, the same test will be applied in
considering whether an award may be set aside under section 68(2)(a) on the grounds that an
arbitrator has failed to act impartially.27 Furthermore, it is clear that the same test for bias is
applied to arbitrators as to judges.28 In applying section 24, the emphasis is on whether the
material circumstances give rise to a reasonable apprehension of bias from the view of an
objective onlooker, rather than passing judgment on the likelihood that the tribunal was in fact
biased. The test is whether in all the relevant circumstances a fair-minded and informed observer
would conclude that there was a real possibility that the tribunal was biased.29 In practice, the
court will approach this in two stages: first, it must ascertain all the circumstances which have a
bearing on the suggestion that the tribunal was biased. Then it must determine whether those
circumstances would lead a fair minded and informed observer to conclude that there was a real
possibility that the tribunal was biased.30
Whether bias (or the danger of bias) is established in any given case will always depend on all the
circumstances of the reference. The burden of proof is generally difficult to discharge and the vast
majority of applications are unsuccessful. The courts are ready to award costs on an indemnity
basis against a party who pursues an allegation of bias without reasonable grounds.31 By way of
example, the following situations have not been regarded as giving rise to bias.

(1) The arbitrator was in the same chambers as counsel for one of the parties.32
(2) An arbitrator was a director of firms owed money by a party to the arbitration.33
(3) An arbitrator was the director of a company which in a similar transaction had been in a
similar position to one of the parties.34
(4) An arbitrator had been involved as a party in a dispute with a key witness two years before
the arbitration.35
5) An arbitrator was a non-executive director and held shares in a company competing for the
contract that formed the background to the arbitration.36
(6) An arbitrator had made a statement criticising the solicitor acting for one of the parties.37

Each arbitrator must be considered separately: there is no rule that where one member of a
tribunal is tainted by apparent bias, all the other members are likewise tainted.38

The courts appear to accept that the law is based both on the individuals right to have an impartial
tribunal and the public interest of maintaining confidence in the administration of justice.39 They
have distinguished three situations where bias may be relied upon to challenge a tribunal:

(a) an arbitrators personal interest in the outcome;


(b) proven or conscious bias;
(c) apparent or unconscious bias.

An arbitrators personal interest in the outcome


An application may be made to remove an arbitrator or challenge his award if it is shown that he
has a personal interest in the outcome of the case. The principle here is that a person must not be a
judge in his own cause. An allegation of this sort is typically based on the arbitrator having a
financial interest in the outcome (e.g., holding shares in one of the parties), but it may also extend
to a non-financial interest such as involvement in a charitable cause.40 Where the arbitrator has a
direct and material financial interest in the outcome, bias is presumed and the arbitrator (or the
award) can be challenged without further investigation. Where a challenge is not based on a direct
financial interest the court has to assess whether the arbitrator is so closely connected to the cause
in question that he may be said to be acting for his own cause.41 The issue to be determined is
whether the outcome of the arbitration will realistically affect the arbitrators interest.42 The mere
fact of membership of an association with a linked interest will not usually be enough to establish
a sufficient interest. In assessing what interest will disqualify an arbitrator the courts will probably
resort to the underlying test of real possibility of bias.43 Once the necessary type of interest is
established, it gives rise to a presumption of bias and automatically justifies the challenge without
further investigation. The automatic nature of the challenge is based on maintaining public
confidence in the administration of justice.44
In AT & T Corporation v Saudi Cable Company,45 the Court of Appeal found that an arbitrators
non-executive directorship of one of the partys competitors was too indirect a connection to
justify challenge on the basis of a personal interest.
Proven or conscious bias
Bias is established by showing that the arbitrator is incapable of approaching the matter fairly and
has a pre-disposed preference towards one party.46 This is sometimes called actual or
conscious bias and is generally very difficult to prove. It was established
in Catalina v Norma.47
The arbitrator was found guilty of actual bias amounting to misconduct because he was overheard
to comment on the evidence of one partys witnesses The Italians are all liars in these cases and
will say anything to suit their book. The same thing applies to the Portuguese. But the other side
here are Norwegians, and in my experience the Norwegians generally are a truthful people.
Apparent or unconscious bias
The most common sort of challenge is where a party does not suggest that the arbitrator is
consciously biased against him but seeks to establish a real possibility of bias. The principle here
is that justice must be manifestly seen to be done, so that the appearance of bias may be a relevant

consideration.48 The test is intended to ensure that the court is looking at the possibility rather than
the probability of bias.49
In Laker Airways Inc v FLS Aerospace Ltd,50 the respondent appointed as its arbitrator a barrister
from the same set of chambers as the applicants barrister. Rix J dismissed the application to
remove the respondents arbitrator, finding that chambers are made of self-employed barristers
each working for their own clients, not sharing a common interest. The organisation of chambers
did not give rise to the danger of accidental or improper dissemination of confidential information
between the arbitrator and the barrister who shared chambers.
In Save and Prosper Pensions Ltd v Homebase Ltd 51 an arbitrator was removed for apparent bias
under section 24 because the firm of which he was a salaried partner had been instructed by a
company associated with one of the parties in respect of a very substantial (but separate) matter. It
was relevant that the arbitrator knew about these instructions and the companies were closely
associated.
In Sphere Drake Insurance v American Reliable Insurance Co 52 the arbitrator had acted as an
advising expert in relation to underwriting issues which were at issue in the arbitration.
Specifically, he had given advice to persons now called as witnesses in the arbitration, had
received confidential information from them, and had probably formed a view about them. It was
held that apparent bias was established.
In Norbrook Laboratories Ltd v A Tank and anor53 the arbitrator made direct contact with
witnesses who might have been disparaging about one of the parties. He was removed pursuant to
section 24.
In ASM Shipping Ltd of India v TTMI Ltd of England54 an arbitrator had been marginally involved
as counsel in a previous case in which allegations of dishonesty and non-disclosure had been made
against a witness who appeared in the present case. Although the application was one to set aside
an award, and not to remove the arbitrator, the court held that he should have recused himself, and
that there were grounds for removal under section 24. However, on the facts the claimant had
waived the right to object.
The terms imputed,55 apparent,56 or unconscious57 bias have been used to describe
situations where there may be reasonable apprehension of bias. The term unconscious bias is not
very helpful since a court is not well equipped to investigate the arbitrators unconscious mind and
such a subjective approach is inconsistent with the objective test of justifiable doubts. The term
apparent bias is not entirely apt because the mere appearance of bias will not in itself justify a
challenge if the court is satisfied on all the available evidence that there could be no real
possibility of bias.58 The court will examine all relevant material, including evidence that may not
have been available at the time the decision was made, to determine whether in the circumstances
there could be any reasonable apprehension of bias.59 When applying the test for bias it may be
appropriate to enquire if the arbitrator knew about the matter relied upon as appearing to
undermine his impartiality. If he was unaware, it is unlikely to have influenced his
judgement.60 Mere involvement by an arbitrator in a connected cause or adverse comment on a
witnesss evidence in an earlier dispute would not usually be sufficient to give rise to a real
possibility of bias. However, personal animosity between an arbitrator and a party involved in the

case, or outspoken criticism of a party or witness in terms which might throw doubt on his ability
to approach such a persons evidence, might justify doubts as to the arbitrators partiality.61 Lapse
of time between the event relied upon and the decision challenged is likely to weaken an
allegation of bias.62

4. REMEDIES AGAINST AN ARBITRATOR


Unless it can be proved that he has acted in bad faith an arbitrator is immune from damages claims
for negligence or breach of contract (except in the case of resignation). However, an arbitrators
authority may be revoked, he may be removed by the court, or his award may be set aside on
various grounds, including serious irregularity, error of law and want of jurisdiction. Some
personal remedies (e.g., repayment of fees) may also be available against an arbitrator if he
resigns or is removed.

Pre-award remedies
The principal methods of recourse are:

(a) resisting applications for court appointments under section 18 of the 1996 Act or applying
to court to set aside default appointments made under section 17(3) (see Chapter 10);
(b) revocation of the arbitrators authority by agreement, as allowed under section 23 (see
below);
(c) removal by the court of an arbitrator under section 24 for impartiality, lack of
qualifications, physical or mental incompetence, failure properly to conduct the proceedings
and failure to use all reasonable despatch (see below);
(d) challenging jurisdiction under section 31 by application to the tribunal or under section 32
by application to the court, or by applying for injunctive or declaratory relief as allowed under
section 72 (see Chapter 6).
(e) remedies for resignation (damages and disentitlement to fees, see section 6 above and
Chapter 20 for the consequences of resignation).

A party risks losing its right to make an objection to an arbitrator if it fails to act promptly in
making that objection (see below on loss of the right to object).
Revocation of an arbitrators authority
Under section 23 of the 1996 Act the parties are free to agree in advance on the circumstances in
which the arbitrators authority to act can be revoked. In the absence of agreement, the arbitrators
authority can only be revoked by the parties acting jointly or by a person (typically an arbitral
institution) vested with such powers.63 Revocation must be in writing unless the parties also agree
to terminate the arbitration agreement.64 The revocation of authority under section 23 requires no
intervention by the court but it does not affect the courts power to remove under section 2465 and
this may be of practical use if the parties seek directions for adjustment of the arbitrators
entitlement to fees. In the absence of such directions an arbitrator whose authority had been
revoked would still be entitled to claim all fees recoverable by him under an agreement or by
statute under section 28(1) (see Chapter 20).
Removal of an arbitrator

Section 24 defines the four grounds justifying removal of an arbitrator by the court.

(1) A party to arbitral proceedings may (upon notice to the other parties, to the arbitrator
concerned and to any other arbitrator) apply to the court to remove an arbitrator on any of the
following grounds
o (a) that circumstances exist that give rise to justifiable doubts as to his impartiality;
o (b) that he does not possess the qualifications required by the arbitration agreement;
o (c) that he is physically or mentally incapable of conducting the proceedings or there are
justifiable doubts as to his capacity to do so;
o (d) that he has refused or failed
(i) properly to conduct the proceedings, or
(ii) to use all reasonable despatch in conducting the proceedings or making an award,
and that substantial injustice has been or will be caused to the applicant.

The courts power of removal is regarded as draconian.66 It will only be exercised after the
applicant has exhausted avenues of recourse vested by the parties in an arbitral institution or any
another person.67 To ensure that court applications cannot be used as a delaying device, section
24(3) expressly provides that the tribunal may continue the arbitral proceedings and make an
award while an application for removal is pending. It is important to note that all the parties and
arbitrators must be given notice of the application (by making them defendants to the application)
and the arbitrators are entitled to appear and to serve evidence at the hearing if they wish.68
Where the court removes an arbitrator it may give directions with respect to that arbitrators
entitlement to fees or expenses or repayment of fees.69 Such directions may take into account
whether the arbitrators conduct prevents him from charging for his services and would probably
override any agreement reached as to fees. An arbitrators removal will not, however, affect his
immunity from suit under section 29.70 Section 27 will govern appointment of a substitute to fill
the vacancy (see Chapter 10).
Removal on grounds of circumstances raising justifiable doubts as to the impartiality of the
arbitrator
This is discussed above under bias. The further requirement under section 24 of proof of
substantial injustice is not, in practice, addressed separately in cases of bias: proof of bias is
presumed to involve substantial injustice.71
Removal on grounds that the arbitrator does not possess the qualifications required by the
arbitration agreement
This is discussed above under qualifications.
Removal for mental or physical incapacity
The alleged incapacity would generally need to be supported by firm evidence, preferably from an
independent expert witness. If the court is satisfied that the arbitrator is mentally or physically
unfit to continue with the arbitration (or there are justifiable doubts as to his capacity) then it is
unlikely that a party would be treated as having lost the right to object under section 73. As a
matter of practice an arbitrator should not continue to act in such circumstances and the court

would probably find that section 73 would not preclude a challenge on the basis of a continuing
and irremediable irregularity in the tribunal.
Removal for failure or refusal properly to conduct the proceedings
This is not defined. It probably has a fairly wide scope, including failure to treat the parties fairly
or adopt suitable procedures so as to avoid unnecessary delay or expense (see the tribunals
general duty to the parties under section 33). To rely on this ground the applicant must also
establish that substantial injustice has been caused, or will be caused, by the arbitrators failure to
conduct the proceedings properly. Although this ground of removal is potentially wide the
DAC72 suggested that powers under this section (and in relation to failure to use reasonable
dispatch) would only be exercised where the conduct of the arbitrator is such as to go beyond
anything that could reasonably be defended and that substantial injustice has, or will, result. The
provision is not intended to allow the court to substitute its own view as to how the arbitral
proceedings should be conducted. The courts have exercised restraint in exercising the power to
remove an arbitrator on this ground, even where they may have disapproved of the arbitrators
conduct of the proceedings.73
Substantial injustice will also be fairly narrowly construed. The DAC74 suggested that having
chosen arbitration the parties cannot validly complain of substantial injustice unless what has
happened simply cannot in any view be defended as an acceptable consequence of that choice.
Failure or refusal to use all reasonable despatch in conducting the proceedings or making an award
To rely on this ground the applicant must establish failure to use reasonable despatch together
with substantial injustice. The DACs cautious approach to challenge for failing to properly
conduct the proceedings will apply and an arbitrator will not be removed unless the arbitration has
gone seriously wrong. The LMAA Terms make provision for arbitrators to resign if the tribunal
cannot fix a hearing date within a reasonable time (see Schedule 4 of the LMAA Terms).
Accordingly, if there is delay on the tribunals part, it is most likely to arise in the preparation of
an award following the close of submissions. Requests to the tribunal as to progress of the award
are common and will usually be acted on promptly. However, it would be exceptional for an
application to remove an arbitrator to be made or even threatened. In such an application a party
will ordinarily be expected first to have asked the arbitrator to proceed with the arbitration and he
will normally act on that, thus making the application for removal unnecessary. What amounts to
reasonable despatch will depend on the nature of the case. An arbitration of complex issues
involving interlocutory disputes and a long final hearing will reasonably take much more time
than a simple arbitration on documents only.
In Lewis Emanuel & Sons v Sammut,75 an arbitrator took four months from the date of hearing to
publish an award in a one-day arbitration over a sale contract. Pearson J held that the delay was
very considerable. The arbitrator was not removed because he published the award before the
hearing of the application. However, he was ordered to pay the costs of the application.
When an arbitrator is removed for unreasonable delay it may be appropriate to apply for directions
under section 24(4) which prevent him from claiming fees for work done with unreasonable delay
or work rendered useless by reason of the delay.

Post-award challenge
After an award is made recourse is only be possible by:

(a) challenging the award under section 67 on grounds of the tribunals lack of substantive
jurisdiction or seeking injunctive or declaratory relief under section 72 (see Chapter 22);
(b) challenging the award for serious irregularity under section 68 (on grounds including
failure to treat the parties fairly, uncertainty, ambiguity, public policy and admitted
irregularity (see Chapter 22));
(c) challenging an award on grounds of error of law (see Chapter 22).

Except for applications for declaratory, injunctive or other relief permitted by section 72,
challenges must be brought within 28 days of the date of the award76 or, if there has been any
arbitral process of appeal or review, of the date when the applicant was notified of the result of
that process.77 Again, a party may lose the right to object if it fails to make its objection as soon
as possible after it could reasonably have discovered the ground for challenge (see below).

5. LOSS OF THE RIGHT TO OBJECT TO AN ARBITRATOR


If a party objects to an arbitrator, for instance on the grounds of bias or lack of qualifications, he
must usually take up that objection as soon as possible after it becomes known to him, otherwise
he risks losing the right to object: he must put up or shut up.78 Section 73(1) of the 1996 Act
provides that:
If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without
making, either forthwith or within such time as is allowed by the arbitration agreement or the
tribunal or by any provision of this Part, any objection

(a) that the tribunal lacks substantive jurisdiction,


(b) that the proceedings have been improperly conducted,
(c) that there has been a failure to comply with the arbitration agreement or with any
provision of this Part, or
(d) that there has been any other irregularity affecting the tribunal or the proceedings,

he may not raise that objection later, before the tribunal or the court, unless he shows that, at the
time he took part or continued to take part in the proceedings, he did not know and could not with
reasonable diligence have discovered the grounds for the objection.
This provision follows Article 4 of the Model Law79 and is intended to avoid delay and expense
arising out of an objection to the arbitrator being made at a late stage in proceedings, typically
after an award has been issued, where that objection could have been made at an earlier stage. As
a matter of fairness a party should not be allowed to keep an objection to the arbitrator up his
sleeve80 for use if dissatisfied with the final outcome, particularly where the objection could have
been remedied if raised at an earlier stage.

Scope of section 73

Section 73 is a far-ranging provision which goes further than the common law doctrines of waiver
and estoppel which were used under the previous law to prevent injustice in such circumstances.
Under section 73 (unlike the common law doctrine of waiver81) a party may lose the right to
object even where he lacks knowledge of the grounds of objection unless he can show that he
could not have discovered those matters with reasonable diligence. The burden is upon the
objecting party seeking to object to establish that he was not aware of the ground of objection, and
could not have discovered it with reasonable diligence.
This clearly covers objections to an arbitrator based on want of jurisdiction, and would include
challenges based on an arbitrator lacking an agreed qualification. Section 73(1) also covers
challenges based on unfairness of procedure- bias falls within the catch-all provision under section
73(1)(d) of any other irregularity affecting the tribunal or the proceedings.82 Section 73 applies
to parties who take part and continue to take part in arbitral proceedings. Section 72 expressly
preserves the right of a party who does not take part in proceedings because a person who disputes
that an arbitral tribunal has jurisdiction is entitled simply to ignore the arbitration.83 It is not clear
what amounts to taking part in the proceedings, but any positive step (e.g., appointing an arbitrator
or serving a statement) or affirmation of the arbitration (e.g., asking for further time to appoint an
arbitrator) would probably be sufficient. Once a party takes part in arbitral proceedings it may be
difficult for him to preserve his rights to object to the arbitrator without making an unequivocal
statement or an application to the court or tribunal. Not taking further steps in the proceedings
may not be sufficient to avoid losing the right to object under section 73, particularly during a
period in which no formal steps are called for from the parties.
In Rustal Trading Ltd v Gill & Duffus SA 84 one of the arbitrators was a director of a sugar trading
company and had been involved in an earlier dispute concerning an individual who took an active
role in one of the parties trading activities. Shortly after being informed of the arbitrators names,
that party wrote a letter to the tribunal raising concerns as to whether the arbitrator in question
would be able to judge the case objectively. There was no response from the tribunal and it
published an award. Moore-Bick J dismissed an application to set aside the award on grounds of
bias. The circumstances did not raise solid doubts about the arbitrators impartiality and in any
event, the applicant had lost its right to object. The letter to the tribunal was in general terms and
did not amount to an objection within section 73. The applicant could not claim that it had not
taken part in the proceedings after sending its letter to the tribunal. The mere fact that a party was
not required to take a formal step in the proceedings, for example in the period between the close
of the hearing and the publication of an award, did not mean that he was not taking part in the
proceedings. Unless a party makes it clear that he is withdrawing from the proceedings, he
continues to take part in them until they reach their conclusion.
In ASM Shipping Ltd of India v TTMI Ltd of England 85 a challenge under section 68 to a partial
award failed because, following an invitation to the arbitrator to recuse himself (which the
arbitrator declined), the applicant had continued with the arbitration and taken up the award
without objecting. Morison J noted that once the applicants had had an opportunity to instruct
their lawyers, they should have made an application to court to remove the arbitrator under section
24.

When and what sort of objection must be made?

If a party continues to take part in the proceedings he must raise an objection forthwith or within
such time as is allowed by the arbitration agreement or the tribunal or by any provision of this
Part. It is rare for arbitration agreements to contain such time limits,86 and parties will therefore
usually have to raise their objection forthwith. The court would require a party to act as soon as
possible,87 but would allow a reasonable time for a party to investigate the matter, take legal
advice and act on it.
It is not clear what sort of objection is necessary to prevent a party from losing the right to object.
Applying to the court is one obvious method. This will normally be the only means of objection if
the ground of challenge is discovered after an award is made (see Chapter 22 on challenging
awards). Before an award is made it is also possible to raise the objection before the tribunal:
indeed this would ordinarily be more appropriate than immediately applying to court as the
tribunal may be able to resolve the objection. Merely raising the matter in correspondence in a
general way will not be treated as sufficient. A party must alert the tribunal (and the other party) in
unequivocal terms that it regards the matters in question as giving ground for challenge.88
In Hussman (Europe) Ltd v Al Ameen Development & Trade Co,89 a jurisdictional challenge under
section 67 of the 1996 Act was successful. Thomas J held that the applicants had made sufficient
objection by raising their jurisdictional objection in opening submissions on the first day of the
oral hearing when they had incomplete information on the point in question, and then applying
later in the hearing to amend their request for arbitration and statement of case when further
information had made the point clearer.

The consequences of making an objection


If the objecting party makes an application to court, the tribunal may still continue with the
arbitration and proceed to an award if it considers this appropriate: for example, if it considers that
the challenge is a delaying tactic.90 If the objecting party makes an objection but does not apply to
the court, then the other parties (and the tribunal) may face some difficulty if they wish to resolve
the objection before proceeding with an arbitration which is vulnerable to challenge when an
award is produced. They cannot force the objecting party to apply to court to remove the arbitrator
and the court has no inherent jurisdiction to grant a declaration in the course of an arbitration to
the effect that there are no grounds for the objection.91 However, if the objection goes to the
arbitrators jurisdiction then it may be determined at an early stage by the tribunal (possibly of its
own motion if this would be the most efficient way of dealing with the issue92) and the objecting
party would then normally have to challenge the tribunals award (or ruling) within 28 days.93
If the objection relates to the arbitrators conduct of the proceedings then the objecting party can
make an objection and wait until an award is made before challenging the award on the grounds of
serious irregularity. However, if the objection is based on bias then the objecting party will have
difficulty in maintaining that there was a reasonable apprehension of bias if he was prepared to
carry on with the arbitration. If the objecting party fails to seek a decision at an early stage then
the tribunal may rely on the risk of challenge as a strong ground for proceeding promptly to an
award on a preliminary issue. This may enable the objection to be resolved at the earliest
opportunity, thereby minimising the risk of wasted time and costs.

Once an award (even on a preliminary issue) has been made, the objecting party has to pursue his
objection within 28 days. In addition to section 73, a failure to challenge the award at that stage
would probably be treated at common law as an election to waive the right to challenge on the
ground previously raised94 and reservation of rights by the objecting party would not necessarily
preclude a finding of waiver.95 The common law doctrine of estoppel might also be invoked in
situations where section 73 is not clearly applicable. An estoppel may arise where one party has
made an unequivocal representation (by words or conduct) that he will not rely on his strict rights
(e.g., by accepting an appointment made after a contractual time limit has expired) or where both
parties have proceeded upon a common but mistaken assumption and it would be inequitable to
allow one party to go back on his representation or the common assumption.96

6. ARBITRATORS IMMUNITY
Section 29 of the Act provides that:

(1) An arbitrator is not liable for anything done or omitted in the discharge or purported
discharge of his functions as arbitrator unless the act or omission is shown to have been in
bad faith.
(2) Subsection (1) applies to an employee or agent of an arbitrator as it applies to the
arbitrator himself.
(3) This section does not affect any liability incurred by an arbitrator by reason of his
resigning.

This provision introduces a very wide immunity and previously more restrictive views on the
scope of arbitrators immunity at common law are unlikely to be followed in determining the
precise scope of the statutory immunity.97
Immunity was conferred on arbitrators for the same reasons that judges are given immunity,
namely to give effect to their judicial role in acting impartially to make a binding decision to
resolve a dispute.98 It was also thought necessary to maintain arbitrators immunity to enable
arbitral tribunals to act independently and to promote finality of awards. The immunity does not
extend to liability incurred by reason of a premature or unjustified resignation (unless agreed
otherwise),99 nor would it prevent a court making orders for repayment of fees following the
removal of an arbitrator.100
The term bad faith has not been defined, but it has already been used in provisions conferring
immunity contained in regulatory statutes such as the Banking Act 1987.101 There is no
authoritative judicial statement as to the meaning of the term in this context but it is probably
intended to connote dishonest or malicious conduct. Mustill & Boyd consider that it involves
conscious and deliberate fault.102
The scope of the immunity is also limited to the discharge or purported discharge of his functions
as arbitrator. The word purported probably covers conduct which falls below the standard of
what would be expected of an arbitrator, but may also cover a person purporting to act as an
arbitrator but who is subsequently found not to have had jurisdiction. The functions of an
arbitrator are not defined but probably involve those functions which the parties have agreed that
he should discharge and functions conferred on him by the 1996 Act. They certainly include his

judicial function of deciding the dispute fairly and impartially and his duty to adopt procedures
suitable to the case.103 They also probably include administrative functions such as responding to
correspondence and fixing hearing dates. The scope of the immunity conferred on the arbitrators
servants and agents under section 29(2) is more unclear. It probably covers administrative
functions but is less likely to cover professional services (e.g., expert advice) as such services are
outside the expertise to be expected of an arbitrator.
Organisations such as the LMAA also enjoy immunity from civil proceedings in respect of the
appointment or nomination of arbitrators as section 74 provides that:

(1) An arbitral or other institution or person designated or requested by the parties to appoint
or nominate an arbitrator is not liable for anything done or omitted in the discharge or
purported discharge of that function unless the act or omission is shown to have been in bad
faith.
(2) An arbitral or other institution or person by whom an arbitrator is appointed or nominated
is not liable for anything done or omitted by the arbitrator (or his employees or agents) in the
discharge or purported discharge of his functions as arbitrator.
(3) The above provisions apply to an employee or agent of an arbitral or other institution or
person as they apply to the institution or person himself.

7. RESIGNATION OF AN ARBITRATOR
Once an arbitrator has accepted an appointment he is under a duty to proceed with due diligence
and adopt whatever procedures are necessary to determine the dispute.104 These duties arise as a
matter of statute and would probably also be implied into an arbitrators contract of appointment
as a matter of business efficacy. Resignation may amount to a breach of an arbitrators contract of
appointment or his statutory duties and his immunity does not cover liability arising from
resignation.105
It is generally accepted that an arbitrator is justified in resigning on reasonable grounds such as illhealth, bereavement or public commitments. It might also be reasonable for an arbitrator to resign
if the parties chose a procedure which was unacceptable to him in the light of his statutory duty to
act fairly and adopt efficient procedures, or where the arbitration had dragged on for far longer
than could reasonably have been contemplated on appointment.106Whether conflicting business
commitments would justify a resignation is more controversial; an arbitrator probably owes the
parties an implied duty to give the arbitration priority over subsequent professional or social
commitments. An arbitrator who resigned from an arbitration for no better reason than giving
priority to a competing professional commitment would risk forfeiting at least part of his
remuneration unless he could show that the resignation caused the parties no detriment, or that it
was reasonable, for instance because he had given the parties notice of that commitment before
accepting the appointment. Section 25 of the 1996 Act provides some guidance on the
consequences of a resignation, in particular as to the arbitrators entitlement to fees and any
liability in respect of resignation (see Chapter 20 for further explanation).

LMAA Terms on resignation

The LMAA Terms cover some of the consequences of the resignation of arbitrators where they are
unable to provide a hearing date within a reasonable time (the Terms set out a scale of reasonable
time for providing hearing dates, while for hearings longer than 10 days the tribunal itself can
decide what is appropriate). If a sole arbitrator cannot make time for a hearing within a reasonable
time then he will offer to retire and, if so requested, will retire upon being satisfied of a suitable
replacement. The parties may make a joint appointment of a substitute, failing which either party
may request the President of the LMAA to make a substitute appointment.107 In the case of
retirement for similar reasons by an arbitrator from a two- or three-person tribunal, a substitute
should be promptly appointed by the party who appointed him, failing which a substitute will be
appointed by the chairman or umpire (or the President if no umpire or chairman has been
appointed).108
The commentary to the Small Claims Procedure (2006) now makes clear that an arbitrator may
resign if he considers that the dispute is no longer suitable for the Procedure and the parties refuse
to agree to an appropriate variation of that Procedure. The LMAA Terms (2006) provide for
resignation if the parties fail to make payment of interim fees (see Chapter 20 for further
discussion).
1 See the discussion in Mustill & Boyd, 2001 Companion, p. 60.
2 Section 33 of the 1996 Act.
3 Section 29 of the 1996 Act (subject to possible liability following removal and resignation, see
sections 24(3) and 25 of the 1996 Act).
4 Alternative contractual analyses are offered in Fal Bunkering v Grecale Inc [1990] 1 Lloyds
Rep 369 at 373.
5 K/S Norjarl A/S v Hyundai Heavy Industries Co Ltd [1991] 1 Lloyds Rep 524 at 531 and 536
and 537; Turner v Stevenage Borough Council [1998] Ch 28 at 38. See also Fal
Bunkering v Grecale Inc [1990] 1 Lloyds Rep 369 at 373, Nurdin Jivraj v Sadruddin
Hashwani [2009] EWHC 1364 (Comm).
6 Mustill & Boyd (2nd edn) p. 224. The right to reasonable remuneration is analysed in terms of
an implied contract in K/S Norjarl A/S v Hyundai Heavy Industries Co Ltd [1991] 1 Lloyds Rep
524, but it is probably more properly analysed as a restitutionary right of quantum meruit.
7 Section 28(1) of the 1996 Act, see Chapter 20.
8 See Mustill & Boyd, 2001 Companion, p. 290 for a contrary view. However, this analysis does
not necessarily follow from the wording of section 30 and much will depend on the wording of the
arbitration clause. See, further, Sumukan Ltd v Commonwealth Secretariat [2007] EWCA Civ
1148; [2008] Bus LR 858, where a failure to comply with pre-appointment consultation
requirements had the consequence that the tribunal lacked jurisdiction.
9 Section 19 of the 1996 Act.
10 The Myron [1969] 1 Lloyds Rep 411 at 415.

11 Rahcassi Shipping Company SA v Blue Star Line Ltd, The Bede [1967] 2 Lloyds Rep 261 (a
lawyer who practised as a maritime arbitrator would be treated as a commercial man, see Pando
Compania Naviera v Filmo SAS [1975] 1 Lloyds Rep 560).
12 Pan Atlantic Group Inc v Hassneh Insurance Co [1992] 2 Lloyds Rep 120.
13 Rahcassi Shipping Co SA v Blue Star Line Ltd [1967] 2 Lloyds Rep 261.
14 [1975] 1 Lloyds Rep 560.
15 [2007] EWCA Civ 1148; [2008] Bus LR 858.
16 See Fal Bunkering v Grecale Inc [1990] 1 Lloyds Rep 369 where disputes arose as to whether
LMAA terms applied.
17 Section 33 of the 1996 Act, this provision is based on Article 18 of the Model Law. The same
principle applied at common law, e.g., Hagop Ardahlian v Unifert International SA, The
Elissar [1984] 2 Lloyds Rep 84.
18 Section 24(1)(a) of the 1996 Act.
19 Section 68(2)(a) of the 1996 Act.
20 Paragraph 101 of the DAC Report.
21 Laker Airways Inc v FLS Aerospace Ltd [1999] 2 Lloyds Rep 45. Paragraph 102 of the DAC
Report had contemplated that such a connection would not justify an allegation of bias and the
Court of Appeal in Locabail (UK) Ltd v Bayfield Properties Ltd [2000] 1 All ER 65 confirmed
that this connection would not justify a challenge. Compare Hrvatska
Elektroprivreda v Slovenia (ICSID Case No. ARB/05/24), in which a barrister was excluded on
such grounds.
22 Smith v Kvaerner Cementation Foundations Ltd [2006] EWCA Civ 242; [2007] 1 WLR 370.
23 Paul Stretford v Football Association [2007] EWCA Civ 238; [2007] 2 Lloyds Rep 31.
24 Rustal Trading Ltd v Gill & Duffus SA [2000] 1 Lloyds Rep 14 at 18.
25 See the (non-binding) guidance in the IBA Guidelines on the conflict of interest in international
arbitration and the Chartered Institute of Arbitrators Guidelines on the interviewing of
prospective arbitrators. These guidelines may be relied upon in support of an application to
remove an arbitrator (e.g., see ASM Shipping of India v TTMI Ltd of England [2005] EWHC 2238
(Comm); [2006] 1 Lloyds Rep 375.
26 Laker Airways Inc v FLS Aerospace Ltd [1999] 2 Lloyds Rep 45; Locabail (UK)
Ltd v Bayfield Properties Ltd [2000] 1 All ER 65; Porter v Magill [2002] 2 WLR 37 at 100.
27 Rustal Trading Ltd v Gill & Duffus SA [2000] 1 Lloyds Rep 14.
28 R v Gough [1993] AC 646 at 670; AT & T Corporation v Saudi Cable Co [2000] 2 Lloyds
Rep 127.

29 Porter v Magill [2002] 2 WLR 37 at 103, Re Medicaments and Related Classes of Goods (No
2) [2001] 1 WLR 700.
30 Flaherty v National Greyhound Racing Club Ltd [2005] EWCA Civ 1117, ASM Shipping
Ltd v Harris and ors [2007] EWHC 1513 (Comm); [2008] 1 Lloyds Rep 61.
31 Bremer Handelsgesellschaft mbH v Ets Soules et Cie [1985] 1 Lloyds Rep 160 at 172.
Indemnity costs are dealt with under CPR, Part 44.
32 Laker Airways Inc v FLS Aerospace Ltd [1999] 2 Lloyds Rep 45. Paragraph 102 of the DAC
Report had contemplated that such a connection would not justify an allegation of bias and the
Court of Appeal in Locabail (UK) Ltd v Bayfield Properties Ltd [2000] 1 All ER 65 confirmed
that this connection would not justify a challenge.
33 Cook International Inc BV v Handelmaatshappij Jean Delvaux [1985] 2 Lloyds Rep 225.
34 Bremer Handelsgesellschaft v Ets Soules & Cie [1985] 2 Lloyds Rep 199.
35 Rustal Trading Ltd v Gill & Duffus SA [2000] 1 Lloyds Rep 14.
36 AT & T Corporation v Saudi Cable Co [2000] 2 Lloyds Rep 127.
37 Fletamentos Maritimos v Effjohn International BV (No 2) [1997] 2 Lloyds Rep 302 at
312; Andrews v Bradshaw, 29 July 1999 (CA), The Times, 1 October 1999.
38 ASM Shipping Ltd v Harris and ors [2007] EWHC 1513 (Comm); [2008] 1 Lloyds Rep 61.
39 Locabail (UK) Ltd v Bayfield Properties Limited [2000] 1 All ER 65. In AT & T
Corporation v Saudi Cable Co [2000] 2 Lloyds Rep 127, the Court of Appeal applied this
decision to arbitration, while recognising the more private nature of arbitration.
40 R v Bow Street Metropolitan Stipendiary Magistrate, ex parte Pinochet Ugarte (No 2) [1999] 1
All ER 577.
41 Laker Airways Inc v FLS Aerospace Ltd [1999] 2 Lloyds Rep 45 at 49.
42 Locabail (UK) Ltd v Bayfield Properties Ltd [2000] 1 All ER 65.
43 In R v Bow Street Metropolitan Stipendiary Magistrate, ex parte Pinochet Ugarte (No
2) [1999] 1 All ER 577, a challenge on grounds of a judges personal interest was successful. The
House of Lords preference for applying the test of bias on the basis of a personal interest (giving
rise to automatic disqualification) and excluding the test of real danger of bias adopted
in R v Gough [1993] AC 646, may have arisen from a reluctance to enter into an investigation of
the likelihood of a fellow member of the House of Lords being biased.
44 R v Bow Street Metropolitan Stipendiary Magistrate, ex parte Pinochet Ugarte (No 2) [1999] 1
All ER 577; Locabail (UK) Ltd v Bayfield Properties Ltd [2000] 1 All ER 65.
45 [2000] 2 Lloyds Rep 127.
46 Mustill J in Bremer Handelsgesellschaft v Ets Soules & Cie [1985] 1 Lloyds Rep 160 at 164.
47 61 Ll L Rep 360.

48 R v Gough [1993] AC 646 at 668.


49 Ibid. at 670, subject to the adjustment in Porter v Magill [2002] 2 WLR 37.
50 [1999] 2 Lloyds Rep 45. The decision is authority is weakened by the applicants nonappearance at the hearing.
51 [2001] L & TR 11.
52 [2004] EWHC 796 (Comm).
53 [2006] EWHC 1055 (Comm); [2006] 2 Lloyds Rep 485.
54 [2005] EWHC 2238 (Comm); [2006] 1 Lloyds Rep 375. Permission to appeal was refused:
[2006] EWCA Civ 1341; [2007] 1 Lloyds Rep 136.
55 Fletamentos Maritimos v Effjohn International BV (No 2) [1997] 2 Lloyds Rep 302 at 312.
56 Laker Airways Inc v FLS Aerospace Ltd [1999] 2 Lloyds Rep 45 at 49; Porter v Magill [2002]
2 WLR 37.
57 R v Inner West London Coroner v Dallaglio [1994] 4 All ER 139 at 152 at 162.
58 Ibid. AT & T Corporation v Saudi Cable Co [2000] 1 Lloyds Rep 22 (Longmore J at first
instance). The Court of Appeal [2000] 2 Lloyds Rep 127 suggested that the court must consider
whether there was any real danger of unconscious bias. These decisions must be viewed in the
light of Porter v Magill [2002] 2 WLR 37, preferring the test of real possibility.
59 R v Gough [1993] AC 646 at 670, but the court will place emphasis on reasonable
apprehension rather than actual danger: see Porter v Magill [2002] 2 WLR 37 at 100; Re
Medicaments and Related Classes of Goods (No 2) [2001] 1 WLR 70 at 85.
60 Locabail (UK) Ltd v Bayfield Properties Ltd [2000] 1 All ER 65.
61 Ibid. Danger of bias in such circumstances was established in R v Inner West London
Coroner v Dallaglio [1994] 4 All ER 139 at 152.
62 Rustal Trading Ltd v Gill & Duffus SA [2000] 1 Lloyds Rep 14; Locabail (UK) Ltd v Bayfield
Properties Ltd [2000] 1 All ER 65 at 78.
63 Under the LMAA Terms there are no express powers to revoke.
64 The revocation need not be in writing where there is an agreement to terminate because it was
considered unfair to impose such a requirement where the parties have terminated the arbitration
agreement by allowing it to lapse, see paragraph 99 of the DAC Report.
65 Section 23(5)(b), given that revocation is intended to have the same effect as removal (see
paragraph 98 of the DAC Report) it is difficult to see how an arbitrator can be removed if his
authority has already been revoked.
66 Dredging and Construction Co v Delta Civil Engineering, 26 May 2000 (unreported).
67 Section 24(2) of the 1996 Act.

68 Section 24(1) and (5) of the 1996 Act, CPR Part 62, rule 62.6(1) & (3).
69 Section 24(4) of the 1996 Act.
70 DAC Supplementary Report on the Arbitration Act, paragraphs 24 to 25.
71 Norbrook Laboratories Ltd v A Tank and anor [2006] EWHC 1055 (Comm); [2006] 2 Lloyds
Rep 485, ASM Shipping of India v TTMI Shipping of India [2005] EWHC (Comm) 2238; [2006] 1
Lloyds Rep 375.
72 Paragraph 106 of the DAC Report.
73 Andrews v Bradshaw, 29 July 1999 (CA) The Times, 1 October 1999.
74 Paragraph 280 of the DAC Report, in relation to challenge for serious irregularity under section
68, including failure to conduct the proceedings properly. See Chapter 22 for further discussion of
the requirement of substantial injustice.
75 [1959] 2 Lloyds Rep 629.
76 Section 54 of the 1996 Act.
77 Section 70(3) of the 1996 Act.
78 Paragraph 105 of the DAC Report.
79 Unlike the Model Law it does not require actual knowledge of the ground of objection.
80 Rustal Trading Ltd v Gill & Duffus SA [2000] 1 Lloyds Rep 14 at 20; Hussman (Europe)
Ltd v Al Ameen Development & Trade Co [2000] 2 Lloyds Rep 83 at 91.
81 Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India, The
Kanchenjunga [1990] 1 Lloyds Rep 391 and see Locabail (UK) Ltd v Bayfield Properties
Ltd [2000] 1 All ER 65 at 78.
82 Wicketts and anor v Brine Builders and anor [2001] CILL 1805.
83 Paragraph 295 of the DAC Report.
84 Rustal Trading Ltd v Gill & Duffus SA [2000] 1 Lloyds Rep 14.
85 [2005] EWHC 2238 (Comm); [2006] 1 Lloyds Rep 375.
86 The LMAA Terms incorporate no express time limits for challenge.
87 This is the requirement for objections under section 31(2) of the 1996 Act.
88 Rustal Trading Ltd v Gill & Duffus SA [2000] 1 Lloyds Rep 14 at 20.
89 [2000] 2 Lloyds Rep 83.
90 Sections 24(3) and 67(2) of the 1996 Act.
91 Section 1(c) of the 1996 Act. At common law no such power exists: Bremer Vulkan Schiffbau
und Maschinenfabrik v South India Shipping Corporation [1981] 1 Lloyds Rep 253.

92 See the tribunals duty under section 33(1)(b)of the 1986 Act.
93 Sections 70(3) and 73(2) of the 1996 Act.
94 Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India, The
Kanchenjunga [1990] 1 Lloyds Rep 391.
95 Kerr LJ in Nichimen Corporation v Gatoil Overseas Inc [1987] 2 Lloyds Rep 46 at 51.
96 Promissory estoppel is explained in Motor Oil Hellas (Corinth) Refineries SA v Shipping
Corporation of India, The Kanchenjunga [1990] 1 Lloyds Rep 391 at 399. For estoppel by
convention, see Amalgamated Investment and Property Co v Texas Commerce International
Bank [1982] QB 84.
97 Sutcliffe v Thackrah [1974] 1 Lloyds Rep 318 and Arenson v Arenson [1976] 1 Lloyds Rep
179. See Lord Kilbrandon at pp. 192-193, Lord Fraser at p. 200 and Lord Salmon at p. 198
doubting the immunity of an arbitrator appointed in a quality dispute in a commodity sale. The
courts decision was not, however, on the scope of an arbitrators immunity and the judgments are
not clear. See the discussion in Mustill & Boyd (2nd edn) pp. 225-229.
98 Paragraph 132 of the DAC Report.
99 Section 29(3) of the 1996 Act. This is a mandatory provision but appears to be subject to any
agreement on liability for resignation recognised under section 25(3).
100 Section 24(4) of the 1996 Act.
101 Section 1(4) conferring immunity on the Bank of England, see also Melton Medes
Ltd v Securities and Investment Board [1995] Ch 157, referred to by the DAC.
102 2001 Companion, p. 300.
103 Section 33 of the 1996 Act.
104 Mustill & Boyd (2nd edn) p. 224; Mustill & Boyd, 2001 Companion, p. 112 and sections 33
and 24(1)(d)(ii) of the 1996 Act.
105 Section 29(3) of the 1996 Act which appears to be subject to the parties agreement under
section 25.
106 Paragraph 115 of the DAC Report. See for example paragraph 9 of the commentary to the
Small Claims Procedure (2006). However, see Mustill & Boyd, 2001 Companion, pp. 110-112 for
potential problems.
107 See paragraph 3 of the Fourth Schedule to the LMAA Terms, this agreement would ordinarily
preclude the court making a substitute appointment under section 27(3) of the 1996 Act.
108 See paragraph 4 of the Fourth Schedule to the LMAA Terms.

Chapter 12

Procedure and Evidence


Procedure and Evidence

1. Introduction
2. The source of control over procedure
3. Mandatory duties of the tribunal and of the parties
4. Agreement of the parties
5. Powers of the tribunal
6. Procedure in London maritime arbitration
7. Sanctions for failure to comply with procedural orders
8. Judicial sanctions and supportive powers

1. INTRODUCTION
Flexibility and privacy are among the main advantages of arbitration over litigation. Unlike court
proceedings, there are no formalised rules of practice binding the parties or the arbitrators:
procedure is governed by the parties agreement and certain essential requirements of procedural
fairness. Arbitration should therefore be able to provide the most efficient and convenient
procedure for resolution of any particular dispute. However, it can become unduly lengthy and
expensive if heavy interlocutory disputes arise or unnecessary evidence is introduced. A fine
balance must be maintained between conducting an arbitration efficiently and preserving each
partys right to a fair opportunity to present its case and meet the other sides case. This balancing
exercise forms the basis of the central mandatory provisions of the 1996 Act.

2. THE SOURCE OF CONTROL OVER PROCEDURE


The tribunal derives its power to control procedure from three sources:

(1) Its duties arising under the central mandatory provisions of section 33 of the 1996 Act, as
supplemented by the parallel duties placed upon the parties by section 40.
(2) The agreement of the parties, including any terms governing the arbitral proceedings.
(3) The powers conferred by the 1996 Act in the absence of agreement, in particular section
34.

It is important to recognise that one of the aims of the 1996 Act was to strengthen the position of
the arbitral tribunal, making it the master of procedure, subject, of course, to the mandatory
provisions of the Act and any agreement concluded by the parties.1

3. MANDATORY DUTIES OF THE TRIBUNAL AND THE PARTIES

Mandatory duty of the tribunal


Section 33 of the 1996 Act provides that:

(1) The tribunal shall


o (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.
(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in
its decisions on matters of procedure and evidence and in the exercise of all other powers
conferred on it.

Section 33 is one of the central provisions of the 1996 Act, and may be viewed as the practical
implementation of the general principles set out in section 1, in particular section 1(a), which
provides that the object of arbitration is to obtain the fair resolution of disputes by an impartial
tribunal without unnecessary delay or expense. Section 33 is intended to set out minimum
standards which are to apply in all arbitral proceedings. For this reason, the provision is
mandatory, and the parties may not contract out of it. As the DAC put it:
we fail to see how a proceeding which departed from the stipulated duties could properly be
described as an arbitration . It seems to us that the public interest dictates that [section] 33 must
be mandatory, i.e. that the parties cannot effectively agree to dispense with the duty laid on
arbitrators under [section] 33. In other words, they cannot effectively agree that the arbitrators can
act unfairly, or that the arbitrators can be partial, or that the arbitrators can decide that the parties
(or one of them) should not have a reasonable opportunity of putting his case or answering that of
his opponent, or indeed that the arbitrators can adopt procedures that are unsuitable for the
particular circumstances of the case or are unnecessarily slow or expensive, so that the means for
resolving the matters to be determined is unfair.2
The consequence of this is that any agreement as to procedure which would conflict with the
tribunals duty under section 33 is, in theory, ineffective.3 For example, a straightforward case can
often be determined without the need for full disclosure of documents, witness evidence, or an
oral hearing. If the parties nevertheless agree to proceed with full disclosure, exchange of witness
statements and an oral hearing, that agreement may contravene section 33. If so, it would be
ineffective and not binding on the tribunal. Were the parties to insist upon their proposed mode of
procedure, the tribunal can either go along with the parties agreement (in which case, the parties
would have no basis for complaining of the breach of section 33) or can resign.4
Despite the central role of section 33 in the 1996 Act, there are only two methods of enforcing it:

(a) an application to remove the arbitrator under section 24; and


(b) challenging the award for serious irregularity under section 68.

These remedies are discussed further in Chapters 11 and 22. In either case, it is necessary to show
substantial injustice, and the DAC5 indicated that these remedies are intended to provide a
longstop, addressing only those rare and exceptional cases where the tribunal has gone so wrong
in its conduct of the arbitration that justice calls out for it to be corrected. It is perhaps surprising
that such a central provision of the Act does not attract a more stringent remedy in the event of
breach.6
Section 33(a)

The first limb of section 33 requires the tribunal to act fairly and impartially and to give each party
a reasonable opportunity to put its case. This provision is based on Article 18 of the Model Law,
and is broadly intended to preserve the principles of natural justice as they apply in arbitration
proceedings. These principles are of particular practical importance where a party is aggrieved by
the procedure which has been adopted in an arbitration. Most applications for remission of an
award, removal of an arbitrator or setting aside of an award for serious irregularity are based on
alleged unfairness in procedure, although it should be noted that most are unsuccessful. The DAC
expressed the hope that the courts [would] take a dim view of those who try to attack awards
because of suggested breaches of this [section] which have no real substance.7 What justice and
fairness require in any given case will vary enormously depending on the circumstances of the
dispute and the particular procedure chosen by the parties. In a commercial arbitration it is
generally assumed that the parties have agreed to a more informal procedure than would prevail in
court. For instance, in a small arbitration on documents, formal disclosure of all documents
relating to the dispute will rarely be required.
Section 33(a) places two essential requirements upon the tribunal, each of which must be balanced
against the requirements of section 33(b):

(1) The arbitrator must act fairly and impartially. Bias and the judicial role of the arbitrator
are considered in Chapter 11.
(2) The arbitrator must give each party a reasonable8 opportunity both to put its case and to
reply to its opponents case.

The question of what constitutes a reasonable opportunity will depend on all the circumstances
and the nature of the dispute. However, the following general comments may be stated.
Oral hearings
There is no absolute right to, or presumption in favour of, an oral hearing in any arbitration.
Although a tribunal must give careful consideration to the question of whether an oral hearing is
appropriate or necessary, the majority of London maritime arbitrations raise issues which can be
determined without any hearing, and proceed on the basis of documents only.
Although there is no absolute right to an oral hearing, where such a hearing is ordered the tribunal
must ensure that each party is given reasonable notice of it, including:

(a) notice of when and where the hearing is to take place. Notice should be given to a party
even if all the circumstances suggest that it will not attend;9
(b) a reasonable opportunity to attend the hearing with witnesses and (where appropriate)
legal representatives. The question of what constitutes a reasonable opportunity depends on
all the circumstances: the arbitrator must balance each partys legitimate interests and if, for
example, a party is being unreasonable in refusing to agree to a convenient hearing date then
the arbitrator would be justified in fixing a date which is reasonable in all the circumstances.

Furthermore, where a hearing is ordered, the tribunal must ensure that each party is given a
reasonable opportunity to put forward evidence and argument. If an arbitrator excludes evidence
without proper grounds for doing so, this may constitute a serious irregularity (although a mere

error of law or fact in excluding evidencefor instance in deciding that documents were
privilegedwould not in itself do so10). In the absence of contrary agreement, arbitrators should
usually allow each party to cross-examine the other sides witnesses11 and present evidence and
argument in rebuttal.
Opportunity to put case
The guiding principle is that a party should not be taken by surprise by the tribunal or by the other
side. So, for example, the tribunal should not raise or rely upon new points without giving each
party a reasonable opportunity to comment upon them, and adduce evidence if appropriate.
In London Underground Ltd v Citylink Telecommunications Ltd,12 Ramsey J summarised the
applicable principles as follows:

(1) The underlying principle is that of fairness or, as it is sometimes described, natural
justice.
(2) There must be a sensible balance between the finality of an award and the residual power
of a court to protect parties against the unfair conduct of an arbitration.
(3) It will generally be the duty of a tribunal to determine an arbitration on the basis of the
cases which have been advanced by each party, and of which each has notice. To decide a
case on the basis of a point which was not raised as an issue or argued, without giving the
parties the opportunity to deal with it, will be a procedural irregularity.
(4) In relation to findings of fact:
o (a) A tribunal should usually give the parties an opportunity to address them on proposed
findings of major areas of material primary facts which have not been raised during the
hearing or earlier in the arbitral proceedings.
o (b) A tribunal has an autonomous power to make findings of fact which may differ from
the facts which either party contended for. This will often be related to inferences of fact
which are to be drawn from the primary facts which are in issue. Such findings of fact
will particularly occur where there are complex factual or expert issues where it may be
impossible to anticipate what inferences of fact might be drawn. In such a case the
tribunal does not have to give the parties an opportunity to address those findings of fact.
o (c) Where a tribunal has been appointed because of its professional legal, commercial or
technical experience, the parties take the risk that, in spite of that expertise, errors of fact
may be made or invalid inferences drawn without prior warning.
(5) In each case whether there is a procedural irregularity and whether it is serious is a matter
of fact and degree which requires a judgment to be made taking into account all the relevant
circumstances of the arbitration including an analysis of the substance of the arbitration and
its conduct viewed as a whole.

Caselaw provides several examples of situations in which arbitrators have breached section 33 by
hearing or relying upon points which were not raised by the parties, and upon which the parties
were not given an adequate opportunity to comment:
Fox v P G Wellfair Ltd 13 concerned a construction arbitration in which the arbitrator was a
barrister who had been an architect and quantity surveyor. The claim was undefended but the
arbitrator rejected a large part of the claimants evidence, substituting his own views for that of the

claimants expert witness. However, he gave no indication to the claimants counsel or their
expert witnesses that he was rejecting their evidence. The Court of Appeal allowed his award to be
set aside. The arbitrator was entitled to use his own expertise but he should not have acted on the
basis of his own private opinion without first disclosing it.
In Sanghi Polyesters Ltd (India) v The International Investor (KCFC)14 disputes arose under
agreements relating to the finance of polyester yarn exports, and these were referred to ICC
arbitration. The arbitration agreement expressly authorised the arbitrator to appoint an expert on
Islamic Sharia law, and the parties subsequently agreed to authorise the arbitrator himself to act
as such an expert. In his award, the tribunal referred to a number of textbooks and other works
which had not been referred to by either sides expert witnesses, or by the arbitrator, during the
hearing. It was held that although one might expect a judge in litigation to refer to authorities upon
which he intended to rely, the same was not necessarily true in arbitration. Furthermore, by
authorising the arbitrator to act as an expert in Sharia law, the parties were giving him more
scope for individual initiative than is usual. Sanghi was an unusual case, and is likely to be limited
to its facts: in most cases where an arbitrator intends to refer to or rely upon an authority, he
should give the parties an opportunity to comment on it.
In Cameroon Airlines v Transmet Ltd,15 the award departed from the way in which the case had
been presented by both parties. No warning was given to the parties, who therefore had no
opportunity to respond to the new arguments. The tribunal were held to have breached its section
33 duty.
Similarly, the tribunal must not talk to witnesses, or hear evidence, in the absence of either party.
In Hussman (Europe) Ltd v Al Ameen Development & Trade Co,16 a tribunal appointed to
determine disputes under a distributorship agreement appointed an expert to advise on Saudi law.
No written instructions were provided to the expert, but the chairman of the tribunal had a meeting
with him in which he identified the points upon which advice was required. The expert sent a draft
report to the tribunal and then, without informing the parties, the tribunal had a meeting with him,
following which the expert produced a final report in the same form as the initial draft. The
claimant in the arbitration complained that the tribunal had breached section 33, both in the mode
of instructing the expert and also by conducting meetings with him in the absence of the parties.
Thomas J held that, while it might have been preferable to consult with the parties before
providing instructions to the expert, the mode of instruction did not amount to a breach of section
33. However, the failure to inform the parties of the meeting with the expert did fall short of the
standards expected of arbitrators, and constituted a breach of section 33.
Similarly, in Norbrook Laboratories Ltd v A Tank & Moulson Chemplant Ltd,17 an arbitrator
conducted unilateral and unrecorded telephone conversations with witnesses. The award was set
aside on this basis.
Arbitrations on documents only
Where an arbitration proceeds on documents only, the basic rule that a party must be given a
reasonable opportunity to submit its evidence and arguments is of particular sig-nificance. An
arbitrator should take reasonable steps to ensure that a party is aware of the case being put against
it and to ascertain whether it wishes to supplement its case. The LMAA Terms18 provide a

timetable for an arbitration on documents which will usually apply and which provides a helpful
starting point for determining an appropriate procedure. However, a tribunal conducting a
documents-only arbitration must always take particular care to ensure that each party is given a
real opportunity to put its case.
In Pacol Ltd v Joint Stock Co Rossakhar,19 a dispute arising under sugar sale contracts was
referred to arbitration. The respondent sellers admitted breach of contract and this issue was not
addressed any further by the claimant buyers. The tribunal dealt with the matter as a documentsonly arbitration, and in their award decided that the sellers were not in breach of contract. The
claimant buyers applied to set aside the award on the ground that the failure to warn them that the
question of liability was to be re-opened was a serious irregularity. Their application succeeded.
Colman J offered the following general guidance as to the proper approach in documents-only
arbitrations:
It is particularly important in arbitrations which are conducted on documents alone that
arbitrators should be alive to the dangers of introducing into their awards matters which have
never been, or have ceased to be, matters in issue between the parties. This case is a particularly
glaring example of the arbitrators simply ignoring the definition of issues which had been arrived
at prior to the time when they had to determine the issues then referred to them. In a paper
arbitration the temptation to arrive at a conclusion which may not have been envisaged by either
party by reference to matters upon which the parties have not had the opportunity of addressing
the arbitrators or in respect of which they have not had an opportunity of adducing further
evidence, may be a particular temptation which arbitrators should be careful to avoid. It is
important for the continuation of the standing and quality of international commercial arbitration
in London, particularly in the commodity fields, that arbitrators should have this problem very
clearly in mind.
In BTC Bulk Transport Corp v Glencore International AG,20 the claimant reserved the right to
make further submissions, if appropriate, on a written application to dispose of a counterclaim on
a summary basis. The tribunal instead determined the counterclaim in a partial final award. The
court held that this was a breach of section 33 and remitted the award.
Non-participating parties
If a party (normally the respondent) fails to participate in an arbitration then, assuming that it has
been given reasonable notice of the proceedings, it will be treated as having voluntarily given up
its right to be heard, at least on the merits of the dispute. (Rights to challenge the jurisdiction of
the tribunal will be preserved pursuant to section 72 of the Act.) In such circumstances the
participating party should take particular care to ensure that the non-participating party has
received proper notice of any hearing at its official and actual address, and by any other available
channels. The arbitrator should also take reasonable steps to warn the non-participating party that
he is proceeding to make an award. What amounts to reasonable notice will depend on the
circumstances21 and whereabouts of the absent party but, assuming that reasonable notice has been
given, the award will bind the non-participating party unless objections on jurisdiction are
successfully pursued in the courts.

It should be noted that mere non-participation by a respondent in an arbitration is not thought to


entitle an arbitrator to proceed automatically to an award in favour of a claimant without
considering the underlying merits of the claimants case. In other words, there is no arbitral
equivalent of a court default judgment, which can be entered automatically when a defendant
fails to serve a defence. An arbitral tribunal should make an award in favour of a claimant only
where it has examined the underlying merits and decided that on the balance of probabilities the
sums or remedies claimed are due. This view is consistent with section 41(4) of the 1996 Act,
which entitles the tribunal (in the case of default) to proceed to an award on the basis of the
evidence before it.
Other aspects of section 33(a)
The arbitrators duties are generally considered to include the duty to inform the parties of his
intention to proceed to an award in default of defence or appearance.22 However, if a party has
actively participated in an arbitration the arbitrator is not required to notify that party of his
intention to proceed to an award where it would be reasonable to conclude that the case has
closedthough it will often be prudent to do so.
Section 33(b)
The second limb of section 33 requires the tribunal to adopt suitable procedures so as to avoid
unnecessary delay and expense. An important aim of the 1996 Act was to ensure that tribunals
tailored arbitral procedures to the requirements of the particular case, and to explode the theory
that an arbitration has always to follow court procedures, as well as preventing lawyers from
bullying non-legal arbitrators into adopting unnecessarily complex (and expensive)
procedures.23 The tribunal is entitled, and obliged, to consider what procedure would be
appropriate, dispensing with any unnecessary steps.
For example, the tribunal should consider whether it would save money to determine one or more
of the issues in advance of the other. It may be possible to identify issuesespecially issues of
law, or issues which raise limited factual disputeswhich will determine the proceedings, or
which are likely to lead to a settlement of the case. Similarly, in a straightforward case where
issues of fact are limited, the tribunal should take care to ensure that the parties do not adopt an
unnecessarily technical approach to disclosure of documents. It will often be appropriate to limit
the disclosure of documents (which can be expensive and time-consuming) to specified categories.
The LMAA Terms expressly limit the scope of general disclosure to documents upon which a
party relies or which adversely affects its case, as well as documents which either support or affect
the other partys case. In most cases, therefore, documents which may simply lead to a chain of
enquiry, but which do not themselves affect the cases being put, need not be disclosed. However,
wider, or even narrower, disclosure may be appropriate, depending on the circumstances of the
case.
Similarly, the tribunal should take care to consider whether or not an oral hearing is necessary. In
many cases, particularly where the dispute turns on questions of law or on the construction of
documents, oral argument is unnecessary, and time and money can be saved by dispensing with it.
There is no absolute right under the Act to an oral hearing. Even if an oral hearing is thought to be
appropriate, the tribunal may decide to limit the number of witnesses attending to give evidence.

Alternatively, the tribunal may limit the time allowed for cross-examination or argumentfor
example, giving each side 50 per cent of the time allotted for the hearing.
In RC Pillar & Sons v Edwards,24 the arbitrator permitted the parties to call an excessive number
of witnesses, failed to limit the time for cross examination and failed to ensure that the issues in
the case were clearly defined. The court held that the arbitrator had breached section 33 and the
award was remitted to the arbitrator pursuant to section 68.

Section 40: Duty of the parties


The requirements of section 33 are buttressed by section 40, which places parallel duties on the
parties in the following terms:

(1) The parties shall do all things necessary for the proper and expeditious conduct of the
arbitral proceedings.
(2) This includes
o (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
o (b) where appropriate, taking without delay any necessary steps to obtain a decision of
the court on a preliminary question of jurisdiction or law (see sections 32 and 45).

Like section 33, section 40 is mandatory. However, the only remedy for breach of section 40 is
provided by section 41, which confers power upon the tribunal to make orders in the event of
failure to take the necessary steps for the proper and expeditious conduct of the
arbitration.25 These powers include the making of peremptory orders (i.e., orders which, if
breached, will result in the imposition of a sanction upon the defaulting party, including, in serious
cases, the striking out of its case, resulting in an award against it). These powers are considered
further below. The separate power to dismiss a claim for inordinate delay is considered further in
Chapter 14.

4. AGREEMENT OF THE PARTIES


Subject to the mandatory provisions of sections 33 and 40, the parties are entitled to agree how
their arbitration will proceed. It is rare for an arbitration clause itself to contain any detailed
provisions governing procedure, though it may refer to arbitration rules which themselves contain
such provisions. Where the LMAA Terms apply to an arbitration (because they are specified in
the arbitration clause, or the tribunal has accepted appointment on LMAA Terms, or the parties
have agreed to their application), various specific provisions apply.

The LMAA Terms (2006)


Paragraph 12 of the Terms provides:

(a) It shall be for the tribunal to decide all procedural and evidential matters subject to the
right of the parties to agree any matter. However, the normal procedure to be adopted is as set
out in the Second Schedule.
(b) In the absence of agreement it shall be for the tribunal to decide whether and to what
extent there should be oral or written evidence or submissions in the arbitration. The parties

should however attempt to agree at an early stage whether the arbitration is to be on


documents alone (i.e. without a hearing) or whether there is to be an oral hearing.
This paragraph provides a basic procedure which will normally be adopted, unless the parties or
the tribunal decide that the particular circumstances of the case require the procedure to be
changed. The main features of the procedural provisions of Schedule 2 are discussed in section 6
below.

5. POWERS OF THE TRIBUNAL


Section 34 of the 1996 Act sets out a non-exhaustive list of the powers enjoyed by the tribunal and
these may properly be regarded as the tools used by the tribunal to comply with its duty under
section 33. While these can be excluded by agreement, to do so would be rare. The LMAA Terms
do not seek to exclude the powers arising under section 34 and, indeed, some of those powers
(e.g., the power to decide whether or to what extent there should be oral or written evidence or
submissions) are expressly adopted in the Terms. Section 34 provides:

(1) It shall be for the tribunal to decide all procedural and evidential matters, subject to the
right of the parties to agree any matter.
(2) Procedural and evidential matters include
o (a) when and where any part of the proceedings is to be held;
o (b) the language or languages to be used in the proceedings and whether translations of
any relevant documents are to be supplied;
o (c) whether any and if so what form of written statements of claim and defence are to be
used, when these should be supplied and the extent to which such statements can be later
amended;
o (d) whether any and if so which documents or classes of documents should be disclosed
between and produced by the parties and at what stage;
o (e) whether any and if so what questions should be put to and answered by the respective
parties and when and in what form this should be done;
o (f) whether to apply strict rules of evidence (or any other rules) as to the admissibility,
relevance or weight of any material (oral, written or other) sought to be tendered on any
matters of fact or opinion, and the time, manner and form in which such material should
be exchanged and presented;
o (g) whether and to what extent the tribunal should itself take the initiative in ascertaining
the facts and the law;
o (h) whether and to what extent there should be oral or written evidence or submissions.
(3) The tribunal may fix the time within which any directions given by it are to be complied
with, and may if it thinks fit extend the time so fixed (whether or not it has expired).

As is clear from the use of the word include in subsection (2), the list of powers is not to be
considered as exhaustive. If a particular procedural power is not listed it does not mean that it is
excluded.

6. PROCEDURE IN LONDON MARITIME ARBITRATION

This section will consider the most important features of procedure in London maritime
arbitrations against the background of the LMAA Terms and the provisions of section 34. Flow
charts setting out the procedure under a typical arbitration are set out in Appendix L.

Statements of case
Statements of case (sometimes also called pleadings) are the documents in which a party sets
out its case in a formal way. Under section 34, the tribunal may decide whether any and if so
what form of written statements of claim and defence are to be used, when these should be
supplied and the extent to which such statements can be later amended. The disadvantages of
formal statements of case are that they are usually drafted with the assistance of lawyers and do
not necessarily isolate the important issues in dispute because every alternative case (however
weak) may be advanced. Furthermore, the traditionally terse style of formal statements of case
may provoke lengthy and expensive requests for further information which are not always
necessary to clarify the live issues. However, in a substantial and complex dispute it may be
advantageous to use formal statements of case since they can be the most clear and precise means
of identifying a partys case. If lawyers are going to be instructed to present the parties cases in
any event, statements of case may be preferred since they have the great benefit of furnishing a
ready made procedure which all lawyers understand26 and also allow any amendments to a
partys case to be made clearly and simply if further allegations arise.
Where the LMAA Terms apply, the Second Schedule provides that the normal procedure is for
service of claim submissions with supporting documents attached. The use of formal pleadings
(with disclosure of documents at a later stage) is intended to be the exception rather than the rule,
and requires special permission to be obtained from the tribunal. The Terms do recognise,
however, that in some more complex cases the more traditional procedure will be appropriate.27 In
other cases (for example, urgent cases in which there is no time for the exchange of submissions
or pleadings) the tribunal may order a case to proceed to a hearing immediately without service of
any written statements of case. For most cases, though, the Terms set out a timetable for the
service of submissions. The starting point is the service by the claimant of claim submissions or
pleadings. Defence submissions or pleadings are to be served within 28 days of receipt of the
claim submissions or pleadings; reply submissions or pleadings are to be served within 14 days of
receipt of the defence submissions or pleadings.28 The submissions or pleadings should set out
every relevant fact relied upon in support of the partys case, cross-referencing where appropriate
to the underlying documents. When serving submissions, a party should check with the tribunal to
see whether it wishes to receive copies of supporting documentation at that stage. In any case it
should not overburden a tribunal with too much documentation at the start of a reference.29 Parties
must also ensure that all submissions and pleadings contain full paragraph numbering30 as this
makes subsequent submissions and arguments much easier to prepare and cross-reference.
The LMAA Terms have adopted some of the features of court proceedings. For example, the
tribunal may31 require a statement of case to be verified by a statement of truth.32 This is a
signed statement by a person representing the party to the arbitration (usually a lawyer or a
company officer) that the allegations made in the statement of case are true. The Terms also
provide that a bare denial is not an appropriate response to an allegation.33 This means that

where a party wishes to deny an allegation, it must give reasons explaining why. This provision
ensures that the real issues between the parties are articulated at an early stage.
Where the LMAA Terms timetable does not apply, or where it has not been adhered to, either
party may ask the tribunal for an order requiring service of submissions or pleadings by a certain
date. The tribunal will normally make such an order, giving the other side a reasonable period to
remedy its default in serving the pleading. Sanctions for default of such interlocutory rulings are
discussed at section 7 below.
It is common for a party to an arbitration to reconsider its pleaded case in the light of new
evidence and to apply to amend its pleadings or submissions. Arbitrators generally allow
amendments, even at a late stage, but almost always on terms that the party seeking to amend pays
the costs of and occasioned by the amendment in any event. Amendments are only likely to be
refused if a party is simply attempting to delay an arbitration, or if any prejudice caused to the
other party cannot be compensated by costs, or if the amendments try to introduce a claim which
is time-barred, or raise questions that are outside the tribunals jurisdiction. The prejudice relied
upon to resist an amendment application normally relates to evidence (e.g., the opposing party
may allege that the evidence needed to answer the amended case is no longer available or that
finding such evidence would cause undue delay at a late stage in the arbitration).

Disclosure
In English court proceedings, each party must disclose documents in its possession or control to
the other side even where they may be detrimental or have no relevance to their own case. This
procedure is called disclosure and it usually takes place after statements of case have been
exchanged. Lists of documents are exchanged specifying which documents are available for
inspection, which are privileged (see below), or which are no longer available for inspection.
Disclosure is a time-consuming exercise but it promotes settlements and reduces the chances of a
party being taken by surprise. It also assists the tribunal by giving it access to contemporaneous
documentary evidence which may be more valuable than oral evidence.34
Under section 34 of the 1996 Act, the tribunal has the power to determine whether any and if so
which, documents or classes of documents should be disclosed between and produced by the
parties and at what stage. As discussed above, the LMAA Terms have eschewed the traditional
procedure of pleadings followed by disclosure in favour of the use of submissions with documents
attached. However, this procedure may not result in disclosure of all the relevant documents. The
LMAA Terms therefore entitle the parties to ask each other for any missing documentation and, if
necessary, to apply to the tribunal for an order requiring disclosure of documents.35
In general, the tribunal will not require the parties to provide broader disclosure than would be
required in court proceedings. Generally, a party will be required to disclose documents upon
which it relies, as well as those which adversely affect its own case, and those which support or
affect its opponents case.36 This reflects the general scope of disclosure in court proceedings,
where documents which merely form the background to the story, but which do not themselves
materially affect either partys case, are not disclosable. If the factual issues in a case are fairly
well defined, the arbitrator may order disclosure to be limited still further to certain categories of
documents. A disclosure order will usually incorporate an order for inspection of the documents

disclosed. After inspection of the documents, the inspecting party will decide which documents to
copy.
Privileged documents
The arbitrators power to order disclosure will generally not be exercised so as to require
disclosure of documents which are privileged (unless such privilege has been waived). Privilege is
the legal term used to describe the protection enjoyed by a party over documents which he is
entitled to withhold from disclosure. Privilege may be claimed on the basis that the documents to
be produced are self-incriminatory, that their production is contrary to the public interest, or that
they are subject to legal professional privilege. Given the private nature of arbitration, public
interest privilege will rarely be invoked. Disputes relating to privilege will usually be concerned
with legal professional privilege. In summary, that privilege attaches to documents which were
produced for the purpose of obtaining legal advice or for the purpose of contemplated or actual
litigation.37 Legal professional privilege covers most correspondence between a client and his
solicitor and between the solicitor and counsel or an expert. Correspondence with a P&I Club
would not generally be privileged unless it was created for the purpose of giving legal advice with
a view to litigation.
Privilege also attaches to without prejudice negotiations which may not be disclosed to the
tribunal during the arbitral proceedings.38 This rule applies where the document is shown to be
part of genuine and bona fide negotiations: the use of the words without prejudice is not
conclusive of this question. Difficulties may arise if the parties disagree over whether a document
is truly privileged. Although in theory the tribunal must consider the document for the purpose of
deciding whether it is admissible,39 this presents the obvious difficulty that the tribunal has then
seen the contents of a document which may be privileged. Disputes relating to privilege can be
extremely difficult to determine in the context of arbitration.
Disputed disclosure
Disclosure can be the most time-consuming part of the preparation for an arbitration, and
interlocutory disputes relating to disclosure often arise. The most common complaints are that a
party has failed to disclose all relevant documents; that claims to privilege are unjustified; or that
disclosure requests amount to illegitimate fishing expeditions in search of irrelevant but
prejudicial documents. If the disclosure of documents or their inspection is in dispute, the parties
may make submissions in writing and a short interlocutory hearing may be necessary to enable the
arbitrator to determine the dispute.
There is very limited recourse against an arbitrators ruling on disclosure: an error of fact or law
(e.g., in admitting a privileged document) does not in itself amount to a serious irregularity. Even
where some form of serious irregularity can be established, the court would only intervene where
substantial injustice has resulted. An appeal is extremely unlikely to be possible since the
arbitrators ruling will probably not be given in a reasoned award and disclosure is a discretionary
matter in respect of which appeals are difficult.
In The Anangel Peace 40 (a pre-1996 Act case) charterers had pressed for disclosure of the vessels
scrap logs which the owners contended had been destroyed. The arbitrators had failed to order
disclosure of the scrap logs and relied instead on other evidence. Charterers sought to rely on this

as misconduct justifying setting aside the award but Robert Goff J dismissed their application. He
held that although arbitrators were under an overriding duty to act fairly as between the parties,
they were basically the masters of their own procedure. There had been attempts to get the
relevant information and the arbitrators had not acted unfairly.
Similarly, in The Robin,41 an award was challenged under section 68 on the basis that an arbitrator
had refused to order production of the vessels logs in a demurrage dispute which had been
referred to the LMAA Small Claims Procedure. The application failed, Toulson J commenting that
the court would be extremely slow to conclude that such a decision could amount to a serious
irregularity, particularly in the context of the Small Claims Procedure which has no provision for
disclosure as such.

Evidence
The tribunal is entitled under section 34 of the 1996 Act to decide whether to apply strict rules of
evidence (or any other rules) as to the admissibility, relevance or weight of any material (oral,
written or other) sought to be tendered . In maritime arbitration, the main effect of this
provision is to confirm that the tribunal is entitled to admit hearsay evidence. It is doubtful
whether section 34 is intended to permit the tribunal to override privilege, which is probably better
regarded as a procedural right rather than merely an evidential rule. In practice, privileged
material is not admitted in London maritime arbitrations.
Witness statements
Witness statements may contain the most important factual evidence in a dispute. A witness
statement should be an accurate representation of the witnesss own recollection of the relevant
events and it should be signed and dated by that witness. In the interests of accuracy it is important
that any statements are prepared as soon as possible after the events in dispute have occurred. It is
common and permissible for a statement to be drafted with the assistance of a solicitor or barrister.
However, a statement which has simply been drafted by a lawyer on the basis of contemporaneous
documents will carry little weight.
Witness statements must usually be exchanged prior to any hearing.42 Exchange of witness
statements between the parties (including experts reports which are considered in more detail
below) is usually simultaneous, but should precede the service of the statements on the arbitrator
to allow sufficient time for any objections (e.g., that the statements refer to without prejudice
negotiations) to be formulated. A witness statement will usually stand as evidence-in-chief,
thereby avoiding the cost and time of examining that witness in chief, on matters covered in the
statement. Although a witness may be asked by the party calling him or her to cover points which
are not dealt with in the statement (e.g., by dealing with points which have arisen during the
hearing itself), it should be remembered that large sections of oral evidence which have not been
touched upon in the witness statement may carry less weight with the arbitrator unless there are
good reasons for such evidence being called at a late stage. To allow substantial new oral evidence
is objectionable because it may take the other side by surprise and deprive them of a reasonable
opportunity to deal with the new points.
Absent witnesses

Witness statements can be adduced as evidence even where no hearing is to take place. If so, the
tribunal must use its experience and expertise to determine the weight to be given to each
statement by assessing it against the evidence and documents as a whole. Where a hearing is
ordered, this will usually be for the purpose of cross-examining witnesses, and some or all of the
witnesses whose statements have been served will therefore attend the hearing. There are two
principal remedies where the witness is unable, or refuses, to attend a hearing. First, a party may
apply for an order from the court (called a witness summons) compelling the attendance of that
witness. An application to court is necessary since the arbitrator has no power to compel the
witnesss attendance. In this connection, section 43 of the 1996 Act provides that a party to
arbitral proceedings may apply to court for such an order in the same way as a party to court
proceedings. However, the court has no power to compel the attendance of a witness who is
abroad, and in the context of maritime arbitrations this may often preclude such an order being
made. The second option is to adduce the absent witnesss evidence as hearsay evidence. For this
purpose, hearsay notices should, strictly, accompany the statements, though this requirement is
rarely observed in arbitration and the absence of a hearsay notice will not usually dissuade a
tribunal from admitting relevant evidence. Where a witness does not attend a hearing and the
tribunal has therefore been unable to hear that witnesss evidence tested by cross-examination,
less weight tends to be attached to that evidence than would otherwise be the case.
Expert evidence
Expert evidence is usually crucial in the context of maritime arbitrations which involve technical
disputes. In The Ikarian Reefer 43 Cresswell J laid down the following guidelines in relation to
expert evidence:

(1) Expert evidence should be, and should be seen to be, the independent product of the
expert uninfluenced as to form or content by the exigencies of the arbitration.
(2) An expert witness should provide independent assistance and should never assume the
role of an advocate.
(3) An expert witness should state the facts upon which his opinion is based, and should not
omit to consider material facts which detract from his concluded opinion.
(4) An expert witness should make it clear when a matter falls outside his expertise.
(5) If an experts opinion is not properly researched because he considers that insufficient
data is available, then this should be stated with an indication that his opinion is no more than
a provisional one.
(6) If after an exchange of reports an expert changes his view on a material matter this should
be communicated to the other side without delay and, when appropriate, to the tribunal.
(7) Where expert evidence refers to photographs, plans, calculations, survey reports or other
similar documents, these must be provided to the opposite party at the same time as the
report.

It is essential that the expert should be seen to be independent and that the experts witness
statement should contain the whole of his evidence. However, a tension exists between the
theoretical independence of the expert witness and the fact that, in practice, the expert will become
one of the team and will often advise his party on privileged documents and documents
obtained on discovery. For this reason, it would be very unusual for an expert witness to give

evidence for both parties. A tribunal has power to order that a single expert should give evidence
on particular topics;44 however, this power should only be exercised when consistent with the duty
under section 33 to give the parties a reasonable opportunity to put their case. Appointment of a
single expert may be appropriate where the costs of party-appointed experts are likely to be
disproportionate, or where the issue to which expert evidence is to be directed is not of primary
importance. For example, where a party alleges that ships logs have been forged, a tribunal may
well decide that the appropriate method of determining that particular issue is by way of
appointment of a single expert. In practice, though, the power to appoint a single expert is rarely
exercised.
Procedurally, expert evidence is treated in the same manner as any other oral evidence. This will
invariably involve the exchange of reports as directed by the arbitrators. The arbitrator is entitled
to exclude expert evidence, or to limit the number of expert witnesses.45 He may also order
meetings between experts so that issues may be agreed or differences in methodologies and
approaches identified. The outcome of these meetings will usually be informally recorded and the
meetings may be open or without prejudice. It would be improper (and probably a breach of
section 40 of the 1996 Act) for a party to attempt to prevent his expert from reaching agreement
with the opposing expert.46 Following the exchange of experts reports it is common for the
experts to produce supplementary reports dealing with issues raised by the other sides expert
evidence.

Oral Hearings
There is no absolute right to an oral hearing. In accordance with its duties under section 33, it is
always for the tribunal to determine whether an oral hearing is necessary or appropriate. Where
the LMAA Terms apply, the Second Schedule sets out the procedure whereby such a
determination is made. A prescribed questionnaire must be completed and submitted to the
tribunal within 14 days of the service of the final submissions or pleadings, so that consideration
can be given to the question of whether a hearing is appropriate. The questionnaire requires the
parties to state, for example, the quantum of the claim, its nature, whether witnesses of fact or
expert witnesses will be called and the estimated length and cost of the proposed hearing.47 Once
these steps have been performed, the tribunal will then decide whether an oral hearing is necessary
or appropriate. This will also be considered by the tribunal at any preliminary meeting ordered
pursuant to paragraph 15 of the LMAA Terms. In practice, it would be rare for a tribunal to refuse
a hearing if both parties insisted that one was necessary.
Fixing hearing dates
Where a hearing is ordered, a date will be fixed by reference to the convenience and prior
commitments of the tribunal, the parties and their representatives and witnesses. Upon fixing, a
booking fee becomes payable. This is discussed in more detail in Chapter 20.
Adjournment applications
Applications for adjournments are commonly made on various groundsfor instance, because
new evidence has arisen or because amendments have altered the nature of the dispute. Arbitrators
will be reluctant to adjourn a hearing at a late stage when time has been set aside for it and

preparations have been made, particularly if the application appears to be a delaying tactic by a
recalcitrant respondent. Each case will, however, depend on its circumstances and the arbitrator
has a very wide discretion to adjourn the hearing. Unless the need for the adjournment was
brought about by both parties or by the default of the other party it is common for the party
obtaining an adjournment to be ordered to pay the costs of, and occasioned by, the adjournment.
Where a case is adjourned part-heard, the LMAA Terms entitle the tribunal to an interim payment
for fees and expenses incurred to date (with credit being given for any booking fee already paid).48
Documents for the hearing
Usually the claimant will prepare files (commonly called bundles) containing the documents
which the parties have agreed should be placed before the tribunal. If the parties cannot agree on
which documents are to be used at the hearing, the arbitrator will make an order requiring one or
both parties to prepare bundles containing all the documents on which each party wishes to rely.
Legible page-numbering and clear lettering of files are extremely obvious, but often ignored,
means of saving time at the hearing. The parties should also ensure that documents included in the
bundles are legible copies and that they are set out in an orderly manner (usually chronologically).
An agreed dramatis personae, chronology (with page references to relevant documents) and core
bundles containing essential documents can also be helpful. In larger cases it will often be helpful
to prepare a list of issues.49
The hearing
Arbitrations are more flexible and informal than trials in court, though the course of the hearing
will usually bear some similarity to a Commercial Court trial. Privacy is one important distinction.
Each party may admit its witnesses and representatives (including lawyers and experts), but
outsiders are only admitted by consent and on the basis that they will maintain the privacy of the
proceedings.50
Unlike court trials, witnesses are rarely sworn in and the order of a hearing will often depend on
the commitments of the arbitrators, witnesses or counsel. Counsel are often instructed to appear in
LMAA hearings (in contrast to commodity arbitrations, for example under the GAFTA Rules, in
which legal representation at hearings is relatively rare). The claimant (usually represented by its
barrister) will briefly open its case by reference to the documents and go on to call its factual
witnesses. Each witness will be cross-examined by the respondent and the tribunal may also ask
questions. The claimants factual witnesses are normally followed by the respondents factual
witnesses and the experts follow in similar order. Each party will then make closing submissions
on the evidence and issues of law. Use of written skeleton arguments and submissions is
extremely common. Although each party must be given a reasonable opportunity to put its case,
this does not necessarily mean that the available time must be divided equally between them. One
party may bear the burden of proof on most or all of the issues and may therefore naturally expect
to require more time to put its case than a party which adopts a less proactive stance and merely
seeks to challenge the points put against it.51
The order of witnesses will usually be agreed between the parties. The arbitrator, who is usually
chosen for his general expertise in maritime matters, will often intervene and may, for example,
lead cross-examination of a witness. If an interpreter is used, the arbitrator should make clear to

him that his function is to translate only and that the witnesss evidence must not be altered or
prompted. Discussions between witness and interpreter should not be permitted.
Where the admissibility of documentary evidence is challenged at the hearing, the arbitrator will
usually make a ruling immediately; alternatively, he may admit the evidence provisionally.
Objections to authenticity will be dealt with in a similar manner, although the arbitrator may ask
the maker of the document in question to give evidence relating to its authenticity.
New evidence tendered before an award is made
The hearing is the occasion on which the parties should present all of their evidence52 and an
arbitrator would be justified in refusing to allow evidence which could have been put forward
during a hearing to be adduced afterwards. However, if fresh and material evidence arises after the
end of the hearing but before an award has been made, the arbitrator will generally allow it to be
admitted and will give the parties the opportunity to make submissions on it. It is common for the
parties and arbitrators to agree that certain issues should be dealt with by written submissions after
the hearing because there is insufficient time at the hearing or because resolving those issues does
not require an oral hearing. To avoid delay in producing an award, a timetable for such
submissions should be set by the arbitrator (or agreed by the parties) at the end of the hearing.
New evidence tendered after an award
Unless the circumstances in which the new evidence is produced amount to a procedural
irregularity within section 68, the court has no power either to set aside the award or to remit the
award to the arbitrator so that the new evidence can be considered.
In Profilati Italia SrL v Paine Webber Inc 53 a dispute was referred to arbitration under the rules of
the London Metal Exchange. After the award was produced, the claimant in the arbitration sought
to challenge the award under section 68 of the Act, arguing that the respondent had failed to
disclose two material documents which would have supported its case. It was held that in the
absence of any evidence that the documents had been deliberately withheld (which might arguably
amount to the obtaining of the award by fraud or in a manner which was contrary to public policy
falling within section 68), the court had no power to intervene. Moore-Bick J commented that the
court has no general jurisdiction to interfere with the working of the arbitral process the court
no longer has the power to remit an award simply on the grounds that new evidence has come to
light.54

Documents-only procedure
Where an arbitration is proceeding on documents only, paragraph 13(c) of the LMAA Terms
provides that following the completion of submissions, the tribunal will give notice of its intention
to proceed to its award and will so proceed unless either party within seven days requests, and is
thereafter granted, leave to serve further submissions and/or documents. Before proceeding to an
award, however, the tribunal must always be sure that the parties have been given a reasonable
opportunity to put their case: see section 3 above.

Interlocutory applications

The LMAA Terms make clear that a party should not approach the tribunal with an interlocutory
application unless it has first taken steps to agree the point in dispute with its opponent.55 This rule
is particularly important in connection with directions or timetabling the future progress of the
arbitration. The parties can usually agree an appropriate timetable and, assuming that the proposed
timetable does not itself contravene section 33, the tribunal will usually be content to adopt it.
Arbitrators usually prefer not to be copied in on every piece of routine interlocutory
correspondence and the LMAA Terms state expressly that tribunals will not acknowledge receipt
of such correspondence unless there is particular reason to do so.56
In larger cases, the tribunal may order a preliminary meeting at which all interlocutory issues
and disputes can be aired and determined. Paragraph 15(a) of the LMAA Terms provides:
The tribunal may decide at any stage that the circumstances of the arbitration require that there
should be a preliminary meeting to enable the parties and the tribunal to review the progress of the
case; to reach agreement so far as possible upon further preparation for, and the conduct of the
hearing; and, where agreement is not reached, to enable the tribunal to give such directions as it
thinks fit.
Before the meeting, the parties should provide the tribunal with information sheets setting out
progress to date, including estimates of readiness for the hearing and the likely duration of the
hearing. The Third Schedule of the LMAA Terms sets out topics which may appropriately be
considered at a preliminary meeting.

Inquisitorial role
Section 34 of the 1996 Act confirms that the tribunal may decide whether and to what extent the
tribunal should itself take the initiative in ascertaining the facts and the law. In maritime
arbitrations, for example, it is common for a tribunal to pursue its own line of questioning (often
arising from the tribunals particular expertise) with factual and expert witnesses. It is rare,
however, for the tribunal to adopt a purely inquisitorial role. Furthermore, where the tribunal does
decide to take the initiative in ascertaining facts and law, it must give the parties an opportunity to
respond to any particular points which arise as a result.57 However, notwithstanding this, an
arbitrator may use his personal or expert knowledge to draw inferences and need not always refer
back to the parties when drawing inferences from the primary facts in issue.58

LMAA Small Claims Procedure


The Small Claims Procedure is intended for cases involving claims or counterclaims of less than
US$50,00059 which do not raise any complex legal or factual issues. Although the Small Claims
Procedure does not differ fundamentally from the normal procedure set out in Schedule 2 to the
LMAA Terms, it includes many features designed to save money and time. The dispute is
determined by a sole arbitrator, and there is a fixed arbitrators fee of 2,000 plus VAT where
applicable, which covers appointment fee, interlocutory proceedings, a hearing (if appropriate) of
up to one day, the writing of the award and the assessment of costs (if any). If any counterclaim
exceeds the claim, a further fee of 1,250 plus VAT becomes payable. Save in exceptional
circumstances, the reference will proceed upon the basis of documents only, with each side setting

out its case in letters with documents attached. The arbitrator has the power to order disclosure of
further documents if in his opinion a party has failed to produce any relevant documents. All
rights of appeal are excluded, and therefore the award (which the arbitrator will seek to publish
within one month from receipt of all relevant documents and submissions) will not be reasoned.
There is a cap of 2,750 (2,500 for arbitrations commenced before 1 July 2008) on recoverable
costs of a claim.

LMAA Intermediate Claims Procedure


The LMAA Intermediate Claims Procedure was introduced in March 2009 and is designed for
disputes involving claims of between US$50,00060 and US$400,000, where the costs of an
ordinary LMAA arbitration might be disproportionate. To this end, the Procedure incorporates a
costs cap on the recoverable costs of the parties of 30 per cent of the claim (and counterclaim, if
any), rising to 50 per cent if there is an oral hearing. Similarly, the tribunals costs are capped at
one-third (in the case of a sole arbitrator) or two-thirds (in the case of a two or three man tribunal)
of the total amount by which the parties costs are capped.
The Intermediate Claims Procedure incorporates a presumption in favour of a three-man tribunal
(though the parties are free to agree on the composition of the tribunal). There is a tight timetable
for the service of written submissions, and no formal disclosure stage (parties are instead obliged
to produce relevant documents with submissions). The Procedure envisages limited factual and
expert witness evidence. There is no automatic right to an oral hearing, and only exceptionally
will one be held. If a hearing takes place, it will be limited to a maximum of five hours.
Perhaps most strikingly, rights of appeal are conditional upon the tribunal certifying that the
dispute between the parties involves a question of law of general interest or importance to the
trade or industry. This provision is intended to avoid differences in view between the court and the
tribunal, and also avoids the costs of an application for permission to appeal.

7. SANCTIONS FOR FAILURE TO COMPLY WITH PROCEDURAL ORDERS


Costs orders and orders disentitling a party from relying on the evidence or argument in relation to
which they have been in default are the most common sanctions imposed by arbitrators. Where a
party, typically the respondent, disobeys an interlocutory order and is delaying the arbitration for
its own purposes then expediting the proceedings by fixing an early hearing date may also be a
fair and effective sanction. If a party fails to comply with an order to give further particulars it
may be appropriate to direct that the statements or submissions of which further particulars are
sought should be struck out unless the requested particulars are served within a given time. For
failure to serve a witness statement or expert report the most effective sanction is to direct that
such evidence will not be admissible and that the relevant witness cannot give evidence. For
default in giving disclosure the arbitrator may fairly draw adverse inferences from the failure to
disclose documents.
If the tribunals directions are breached, then it is empowered by section 41 of the 1996 Act to
make peremptory orders. (Peremptory orders are final orders providing a sanction for noncompliance which will be enforced with no opportunity for another chance to comply. They are
appropriate where a party has, without excuse, failed to comply with the arbitrators orders.) In the

event of failure to comply with a peremptory order requiring provision of security for costs,
section 41 entitles the tribunal to make an order dismissing the claim. In addition, in LMAA
arbitrations, paragraph 14(c) of the Terms provides that where a party fails, in breach of an order,
to provide security for costs, the tribunal may stay the whole or part of its claim. For breach of
other peremptory orders, the tribunal may direct that the defaulting party is not entitled to rely on
a specified allegation or material, may direct the payment of costs, or may proceed to an award on
the basis of the evidence before it. Alternatively, the court has power to enforce compliance with
the peremptory order under section 42 of the 1996 Act.

8. JUDICIAL SANCTIONS AND SUPPORTIVE POWERS

Judicial sanctions
Recourse to the courts for rulings on procedural issues made by the arbitrator during the course of
an arbitration is extremely difficult. As a matter of policy, the courts are reluctant to intervene
where parties have chosen an arbitrator to resolve their disputes: judicial remedies are seen as
contrary to the parties choice of one-stop adjudication by the arbitrator.61 As a matter of
jurisdiction, the courts do not have general supervisory powers over arbitrators or arbitrations. The
main methods of recourse are:

(a) removal of the arbitrator for breach of section 33 under section 24 of the Act;
(b) remission and setting aside of an award for breach of section 33 under section 68 of the
Act.

These remedies are discussed further in Chapters 11 and 22.

Supportive powers of the court


The 1996 Act aims to ensure that the courts powers of intervention are clearly and narrowly
defined so that the role of the court is limited to those occasions when it is obvious that either the
arbitral process needs assistance or there has been, or is likely to be, a clear denial of justice.
Section 1(c) provides that in matters governed by this Part the court should not intervene except
as provided by this Part. It is important to note that this provision uses the word should which
connotes a duty on the court not to intervene but does not exclude all the courts residual powers
to intervene (the word shall, which was adopted in Article 5 of the Model Law, would have
deprived the court of all powers to intervene).62
Section 44 (which corresponds to Article 9 of the Model Law) provides a narrow range of fallback powers exercisable by the court in support of an arbitration. It provides:

(1) Unless otherwise agreed by the parties, the court has for the purposes of and in relation to
arbitral proceedings the same power of making orders about the matters listed below as it has
for the purposes of and in relation to legal proceedings.
(2) Those matters are:
o (a) the taking of the evidence of witnesses;
o (b) the preservation of evidence;

(c) making orders relating to property which is the subject of the proceedings or as to
which any question arises in the proceedings
(i) for the inspection, photographing, preservation, custody or detention of the
property, or
(ii) ordering that samples be taken from, or any observation be made or experiment
conducted upon, the property, and for that purpose authorising any person to enter
any premises in the possession or control of a party to the arbitration;
o (d) the sale of any goods the subject of the proceedings;
o e) the granting of an interim injunction or the appointment of a receiver.
(3) If the case is one of urgency, the court may, on the application of a party or proposed party
to the arbitral proceedings, make such orders as it thinks necessary for the purpose of
preserving evidence or assets.
(4) If the case is not one of urgency, the court shall act only on the application of a party to
the arbitral proceedings (upon notice to the other parties and to the tribunal) made with the
permission of the tribunal or the agreement in writing of the other parties.
(5) In any case the court shall act only if or to the extent that the arbitral tribunal, and any
arbitral or other institution or person vested by the parties with power in that regard, has no
power to act or is unable for the time being to act effectively.
(6) If the court so orders, an order made by it under this section shall cease to have effect in
whole or in part on the order of the tribunal or of any such arbitral or other institution or
person having power to act in relation to the subject-matter of the order.

Section 44 is discussed in more detail in Chapters 8 and 18 on injunctions and security since this
is the context where it is most commonly applied. Although it would appear to give the court
fairly wide powers, it has been construed restrictively in accordance with the Acts overall policy
of reducing court intervention in the arbitral process. In particular the court can only act where the
tribunal is unable to act effectively. If the case is one of urgency then the court has power to
make orders for the purpose of preserving evidence or assets, but not for other purposes.63 If the
case is not shown to be urgent then the court would only act upon the agreement of the parties or
the permission of the tribunal.
The meaning of unable to act effectively is unclear although it is likely to encompass any
inability of arbitrators to make orders with some practical effect, as well as the situation where the
tribunal is not yet fully constituted or fully available.64 Similarly, an arbitrator who is unwell or
absent would probably fall within this formula.
Finally, the court can intervene to ensure the effective service of documents. Section 76 makes
provision for service of notices in arbitral proceedings as follows:

(1) The parties are free to agree on the manner of service of any notice or other document
required or authorised to be given or served in pursuance of the arbitration agreement or for
the purposes of the arbitral proceedings.
(2) If or to the extent that there is no such agreement the following provisions apply.
(3) A notice or other document may be served on a person by any effective means.
(4) If a notice or other document is addressed, pre-paid and delivered by post

o
o

(a) to the addressees last known principal residence or, if he is or has been carrying on a
trade, profession or business, his last known principal business address, or
(b) where the addressee is a body corporate, to the bodys registered or principal office, it
shall be treated as effectively served.

Section 77 provides the court with fall-back powers in relation to service of documents where the
service of a document in the manner agreed by the parties or in accordance with section 76 is not
reasonably practicable:

(2) Unless otherwise agreed by the parties, the court may make such order as it thinks fit
o (a) for service in such manner as the court may direct; or
o (b) dispensing with service of the document.

1 For a detailed discussion of the innovative nature of the mandatory and non-mandatory
provisions of internal arbitration law, see Mustill & Boyd, 2001 Companion, pp. 52-65.
2 Paragraphs 150 at 155 of the DAC Report.
3 In the sense of not being given effect under the Act. Mustill & Boyd, 2001 Companion, pp. 103105, raise the interesting question of whether an arbitration agreement which breached the
mandatory provisions of the Act (and was therefore entirely unrecognised under the Act) could
nevertheless be enforced at common law outside the Act. This difficult question is unlikely to
arise frequently in practice.
4 Paragraphs 154-163 of the DAC Report. See Chapter 11 for further discussion of resignation.
5 Paragraph 280 of the DAC Report.
6 For further discussion, see Mustill & Boyd, 2001 Companion, pp. 62-65 and 306-307 (where
sections 33 and 40 are described as imposing duties of imperfect obligation and where the
possibility of a claim by one party against the other for breach of statutory duty is raised). The
longstop nature of the available remedies has been stressed by the courts: see, e.g., Petroships
Pte Ltd v Petec Trading and Investment Corporation, The Petro Ranger [2001] 2 Lloyds Rep
348, Warborough Investments Ltd v S. Robinson & Sons Ltd [2004] P&CR 6, ABB AG v Hochtief
Airport GmbH and Ors [2006] EWHC 388 (Comm); [2006] 2 Lloyds Rep 1, Bandwidth Shipping
Corp v Intaari, The Magdalena Oldendorff [2007] EWCA Civ 998; [2008] 1 Lloyds Rep
7; Elektrim SA v Vivendi Universal and ors [2007] EWHC 11 (Comm); [2007] 1 Lloyds Rep 693.
7 Paragraph 151 of the DAC Report.
8 The words full opportunity as used in the Model Law were deliberately changed to
reasonable opportunity so as to avoid any suggestion that a party was entitled to take as long as
it pleased in putting its case: paragraphs 164-165 of the DAC Report.
9 Section 76 of the Act provides a guide to the types of steps (e.g., service on registered address)
which should amount to proper notice.
10 K/S A/S Bill Biakh v Hyundai Corp [1988] 1 Lloyds Rep 187.
11 Cf. Chilton v Saga Holidays [1986] 1 All ER 841.

12 [2007] EWHC 1749 (TCC); [2006] 2 Lloyds Rep 1; see also Bulfracht (Cyprus) Ltd v Boneset
Shipping Company Ltd, The MV Pamphilos [2002] EWHC 2292 (Comm); [2002] 2 Lloyds Rep
681; see also Warborough Investments vRobinson [2004] P&CR 1. The authorities were
summarised by Tomlinson J in ABB AG v Hochtief Airport GmbH and anor [2006] EWHC 388
(Comm); [2006] 1 Lloyds Rep 1, and that summary was approved by the Court of Appeal
inBandwidth Shipping Corp v Intaari , The Magdalena Oldendorff [2007] EWCA Civ 998; [2008]
1 Lloyds Rep 7.
13 [1981] 2 Lloyds Rep 514; see also Interbulk Ltd v Aiden Shipping Co Ltd, The Vimeira [1984]
2 Lloyds Rep 66.
14 [2000] 1 Lloyds Rep 480.
15 [2004] EWHC 1824 (Comm); [2006] TCLR 1.
16 [2000] 2 Lloyds Rep 83.
17 [2006] EWHC 1055 (Comm); [2006] 2 Lloyds Rep 485.
18 Paragraph 13(c) and the Second Schedule.
19 [2000] 1 Lloyds Rep 109.
20 [2006] EWHC 1957 (Comm).
21 Guidance is provided by section 76 of the 1996 Act.
22 The Myron (Owners) v Tradax Export SA, The Myron [1969] 1 Lloyds Rep 411 at 416.
23 Paragraph 153 of the DAC Report.
24 [2001] CILL 1799.
25 In the 2001 Companion, the editors of Mustill & Boyd floated the possibility that section 40
took effect as an implied term of the arbitration agreement (with the result that a claim for
damages might lie in the event of breach). However, this analysis was rejected (obiter) by Aikens
J in Elektrim SA v Vivendi Universal SA [2007] EWHC 11 (Comm); [2007] 1 Lloyds Rep 693.
26 Mustill & Boyd, 2nd edn, p. 319.
27 Second Schedule, paragraph 1.
28 Ibid., paragraphs 2-3.
29 Ibid., paragraph 4.
30 Ibid., paragraph 5.
31 In court proceedings, all statements of case must be verified by a statement of truth. In
arbitration, it is rare in practice for a statement of truth to be required, though it may be
appropriate in relation to, for example, allegations of fraud or allegations which appear to have
little or no evidential basis.
32 Second Schedule, paragraph 11.

33 Ibid., paragraph 6.
34 Sunderland Steamship P&I Association v Gatoil International Inc, The Lorenzo
Halcoussi [1988] 1 Lloyds Rep 180 at 184.
35 Second Schedule, paragraphs 9 and 10.
36 Ibid., paragraph 9.
37 See, generally, Cross & Tapper on Evidence, 11th edn; Hollander, Documentary Evidence, 9th
edn.
38 Rush & Tompkins v GLC [1988] 3 All ER 737.
39 South Shropshire DC v Amos [1986] 1 WLR 1271.
40 [1981] 1 Lloyds Rep 452.
41 Ranko Group v Antarctic Maritime SA [1998] LMLN 492.
42 E.g., LMAA Terms, Second Schedule, paragraph 12.
43 National Justice Cia Naviera SA v Prudential Assurance Co Ltd [1993] 2 Lloyds Rep 68; see
also Goodall [1990] 56 Arbitration 159 and Franks [1994] 60 Arbitration 56.
44 See section 37 of the Act; for an example, see Hussman (Europe) Ltd v Al Ameen Development
& Trade Co [2000] 2 Lloyds Rep 83.
45 Section 34(2)(h) of the 1996 Act and paragraph 14(a) of the LMAA Terms.
46 Cf. CPR, Part 35.
47 Second Schedule, paragraph 8.
48 Paragraph 18 of the LMAA Terms.
49 Cf. Petroships Pte Ltd v Petec Trading & Investment Corp, The Petro Ranger [2001] 2 Lloyds
Rep 348 at 358.
50 See Chapter 13.
51 See Mustill & Boyd, 2001 Companion, p. 31.
52 Town & City v Wiltshier (1988) 44 Build LR 109; Jugoimport SPDR v Westacre
Investments [1999] QB 740.
53 [2001] EWHC 24 (Comm); [2001] 1 Lloyds Rep 715.
54 At 720.
55 Second Schedule, paragraph 13.
56 Ibid., paragraph 15: the provision is intended to prevent the wasting of unnecessary time and
costs.

57 E.g., Hussman (Europe) Ltd v Al Ameen Development & Trade Co [2000] 2 Lloyds Rep 83,
where a tribunal held discussions with an expert without conferring with the parties.
58 London Underground Ltd v Citylink Telecommunications Ltd [2007] EWHC 1749 (TCC);
[2006] 2 Lloyds Rep 1; and cases on section 68(2)(a) discussed in Chapter 22.
59 This limit is likely to rise to US$100,000: see below.
60 The current recommended limit for the LMAA Small Claims Procedure although this is likely
to rise to US$100,000.
61 E.g., dicta in Harbour Assurance Co Ltd v Kansa General International Ins Co [1993] QB 701
at 724.
62 Paragraphs 20-21 of the DAC Report; Vale do Rio Doce Navegacao SA v Shanghai Bao Steel
Ocean Shipping Co [2000] 2 Lloyds Rep 1 at 11.
63 Cetelem SA v Roust Holdings Ltd [2005] EWCA Civ 618; [2005] 1 Lloyds Rep 494, departing
from Hiscox Underwriting Ltd v Dixon [2004] EWHC 479 (Comm); [2004] 2 Lloyds Rep 438.
64 Starlight Shipping Co v Tai Ping Insurance Co Ltd [2007] EWHC 1893 (Comm); [2008] 1
Lloyds Rep 230.

Chapter 13

Confidentiality in Arbitration
Confidentiality in Arbitration

1. Introduction
2. Nature of the duty
3. Exceptions
4. Confidentiality of awards
5. Confidentiality and court proceedings
6. Practice and remedies

1. INTRODUCTION
Confidentiality is one of the most valued features of London arbitration. Litigation ordinarily
involves a public hearing and third parties will have access to court documents1 whereas the
privacy of arbitration enables the parties to avoid their disputes becoming known to competitors,
clients or the public. The Arbitration Act 1996 does not include any statutory principles of
confidentiality because the drafters considered that it was a difficult area which could be better
resolved by the courts on a pragmatic case by case basis.2 The parties to an arbitration agreement
are also better placed to define any duties of confidentiality more clearly, in particular by choosing
institutional rules with stipulations for confidentiality.3

2. THE NATURE OF THE DUTY

Under English law, unlike Australian law,4 it is clearly established that a general duty of
confidentiality exists in relation to arbitral proceedings. Leggatt J in The Eastern Saga 5 explained
that the concept of private arbitrations derives simply from the fact that the parties have agreed to
submit to arbitration particular disputes arising between them and only between them. It is implicit
in this that strangers shall be excluded from the hearing and conduct of the arbitration. Colman J
in Hassneh Insurance Co v Mew 6 commented that parties to an arbitration are entitled to assume
that the hearing will be in private and this assumption arises from a practice which has been
universal in London for hundreds of years. The Court of Appeal in Ali Shipping
Corporation v Shipyard Trogir identified the obligation of confidentiality in arbitration more
specifically as an implied term of the arbitration agreement that attaches as a matter of law as an
essential corollary of the privacy of arbitration.7 However, in Associated Electric Gas Insurance
Services Ltd v European Reinsurance Company of Zurich,8 the Privy Council expressed
reservations against categorizing the duty of confidentiality as a specific implied term subject to
exceptions because such an approach failed to reflect the different types of confidentiality which
may attach to different documents. The Court of Appeal in Emmott v Michael Wilson &
Partnerss 9 affirmed that the duty of confidentiality is implied into the arbitration agreement as a
matter of law but also emphasised that the scope of the duty would depend on the context in which
the dispute arise.
The concepts of privacy and confidentiality are closely related and the courts have generally used
the terms interchangeably.10 The main practical distinction is that the terminology of privacy is
readily attached to the hearing whereas confidentiality (with exceptions) is used with reference to
documents generated by the arbitration. The Court of Appeal in Emmott v Michael Wilson &
Partners 11 suggested that privacy in the conduct of an arbitration should be contrasted with more
specific aspects of the law of confidentiality such as the protection of inherently confidential
information (e.g., trade secrets) or the rule that documents disclosed in an arbitration can only be
used for the purpose of that arbitration.
Confidentiality attaches to all aspects of the arbitration, in particular the hearing, the documents
produced in the course of the arbitration and the award. It is more doubtful whether the duty
would extend to the mere fact of having commenced arbitration or obtained an award.
In Department of Economic Policy of the City of Moscow v Bankers Trust 12 it was common
ground that either party could disclose the end result of an arbitration. However, in most cases
parties may wish to prevent publicity as to the existence of an arbitration, its subject matter and
the end result.
The most common issue to arise is whether documents generated in an arbitration can be disclosed
to third parties. In defining the duty of confidentiality in arbitration the courts have sometimes
drawn an analogy with the position regarding documents obtained on disclosure in court
proceedings and also the duty of confidentiality owned by a banker to his customer.13 A person to
whom documents are disclosed under court rules is under an implied obligation to the court not to
use the documents for any purpose other than the proceedings in progress.14 The rationale for the
obligation is the fact that the disclosure is compelled purely for the purpose of the
proceedings.15 In arbitration a similar principle precludes the use of documents for any other
purpose than the dispute in which they were obtained.16

The duty of confidentiality is owed by the parties to the arbitration agreement to each other. It is
also owed by the arbitrator to the parties as an implied term of his appointment. A similar duty
would also be imposed on legal advisors and expert witnesses17 as an implied term in their
contract and also by reason of their notice of the confidential nature of arbitration.18 The duty of
confidentiality may also be owed by other witnesses but it would be advisable to give them
express advance notice of the confidentiality of the proceedings.

3. EXCEPTIONS
The duty of confidentiality in arbitration is not absolute. In Ali Shipping Corporation v Shipyard
Trogir 19 the Court of Appeal gave guidance on circumstances where exceptions would arise but
there are no blanket rules applicable to all documents: in particular an award may receive different
treatment and is dealt with separately below.20 The principal exceptions to the duty of
confidentiality are:

(a) the parties consent (express or implied);


(b) where there is an order or leave of the court;
(c) where it is reasonably necessary for the protection of the legitimate interests of an
arbitrating party;
(d) the interests of justice and probably also
(e) the public interest.21

Consent would cover cases where the parties had agreed institutional rules that allowed disclosure
to third parties (e.g., rule 14(b) of the LMAA Terms) or terms implied by custom or business
efficacy. This might include disclosing an award in non-contentious situations, for instance to
insurers, auditors or to comply with stock exchange regulations. It would also include practices
that had been established by custom.
In Owners of Hamtun v Owners of St John,22 Gross J found that the implied term of
confidentiality in LOF arbitration agreements was qualified by the custom of awards being made
available to judges, salvage arbitrators and lawyers with a view to promoting uniformity and
consistency.
Disclosure of documents by order or permission of the court might occur where a party is
compelled to make disclosurefor instance where the court orders disclosure of documents
generated by an earlier arbitration for use in a court action. Such an order would be made if the
court was satisfied that the documents were necessary for dealing with the case justly, normally
because they would adversely affect one partys case or support another partys case. In ordering
disclosure the court will take into account the confidentiality of the documents.23 Whether
documents disclosed in foreign proceedings will be disclosable in London arbitration may depend
on the basis upon which the documents were disclosed: if the documents were voluntarily
disclosed then they would be more readily disclosable than if they were disclosed under
compulsion.24 In Ali Shipping,25 Potter LJ focused on disclosure by order of the court, but it
appears likely that an arbitrator in a later arbitration could similarly order disclosure of documents
and that compliance with such an order would not breach confidentiality in the first arbitration.

The Court of Appeal has made clear that disclosure will be allowed when, and to the extent to
which, it is reasonably necessary for the protection of the legitimate interests of an arbitrating
party vis--vis a third party in order to found a cause of action against that third party or to defend
a claim (or counterclaim) brought by the third party.26 This would not justify disclosure simply
because it may have a commercially persuasive impact on the third party or would be merely
helpful, as distinct from reasonably necessary for the protection of rights.27 Accordingly, it is
doubtful that it is enough to establish merely that the third party has a legitimate interest in the
material (e.g., where disclosure of a successful award by a subsidiary to its parent company would
make it easier for the parent company to borrow money).28 Potter LJ considered that the concept
of reasonable necessity should be approached flexibly, taking into account the practicability and
expense of obtaining the evidence or information by other means. However, it is not enough that
disclosure would save time or expense: Potter LJ did not think that convenience and good sense
are in themselves sufficient to satisfy the test of reasonably necessity.29
In Ali Shipping Corporation v Shipyard Trogir 30 six Liberian shipping companies in common
beneficial ownership were parties to separate shipbuilding contracts with a shipyard. Under one of
the contracts the yard failed to complete the hull and the buyer, Ali Shipping, was successful in
obtaining an award for damages. The yards response was to activate three arbitrations previously
commenced against the other buyers before a different tribunal in which they claimed the first
instalment of the purchase price. The Court of Appeal upheld an injunction restraining the yard
from disclosing materials from the earlier arbitration in the later arbitrations, in particular the
award, written submissions and transcripts of oral evidence given by Ali Shipping. The disclosure
was not reasonably necessary for the yard in making its case on the merits even though disclosure
of transcripts of evidence in the earlier arbitration might have saved time and expense. Potter LJ
accepted, however, that if there was an application to dismiss the later arbitrations for want of
prosecution then the yard could rely on the transcripts to rebut any suggestion that the delay had
caused prejudice.
Similar considerations will apply where a party seeks to disclose documents generated in one
arbitration in other proceedings between the same parties (as opposed to third parties). Where no
third party is involved the court will be only considering the scope of the duty of confidentiality
and will not need to balance that duty against the interests of disclosure to the third party.31
The Court of Appeal in Ali Shipping and Emmott v Michael Wilson & Partners recognised that
disclosure of documents may also be justified in the interests of justice, in particular to ensure that
a judicial decision is reached upon the basis of truthful or accurate evidence.32
Emmott v Michael Wilson & Partners Limited 33 involved a bitterly fought dispute between two
solicitors who had formerly worked together. In a London arbitration Mr Wilsons firm had made
allegations of fraud against Mr Emmott but such allegations were subsequently struck out by the
tribunal. Related court proceedings were commenced by Mr Wilsons firm in New South Wales
against parties associated with Mr Emmott and he applied to the English court to disclose the
London arbitration pleadings and skeleton arguments in the Australian proceedings on grounds
that Mr Wilsons case in the different proceedings was inconsistent and presented those courts
with a misleading picture. The majority of the Court of Appeal allowed disclosure on grounds of

the interests of justice although Thomas LJ recognised this exception as an aspect of public
interest.
In London & Leeds Estate v Paribas Ltd 34 an issue arose as to whether the evidence of property
market values given by an expert witness in a rent review arbitration was consistent with his
evidence on the same issue in two earlier arbitrations. Mance J (as he then was) upheld an order
asking the expert to produce his reports from one of the earlier arbitrations. He considered that if a
witness were proved to have expressed his views differently when acting for different sides, this
would be a factor which should be brought out in the interests of the individual litigants involved
and in the public interest. This factor would outweigh objections on grounds of privacy and
confidentiality.
The majority in Emmott v Michael Wilson & Partners left open the question of whether the public
interest should be regarded as an independent exception to confidentiality. However, public
interest is generally accepted as justifying an exception to the duty to protect confidential
information in other contexts. This exception might apply where disclosure of something
disclosed in an arbitration is clearly necessary to protect the public (e.g., criminal practices). In
one exceptional arbitration, The Lena Goldfields Case,35 the hearing was open to the press in order
to defend the proceedings against malicious charges made by the USSR. There is little case law on
the scope of public interest defences in the context of arbitration but case law from other areas
may provide guidance.36
In Ali Shipping the Court of Appeal considered the exception to confidentiality in the context of
the court giving permission to disclose documents. However, it appears likely that an issue
between the parties to an arbitration as to whether documents generated in that arbitration may be
disclosed outside the arbitration (e.g., in court proceedings) will usually be within the jurisdiction
of the arbitral tribunal. Unless both parties are willing for the issue to be resolved in court then it
should be determined by the arbitral tribunal37 and any court proceedings will be subject to a stay
under section 9 of the 1996 Act.38

4. CONFIDENTIALITY OF AWARDS
Under English law an award is a confidential document unless the parties agree otherwise or can
establish an exception justifying disclosure. The position is to be contrasted with New York
arbitration where awards are commonly published.
Typically an agreement dealing with confidentiality will be in institutional rules: paragraph 22 of
the LMAA Terms makes special provision for confidentiality of reasons for awards (see Chapter
19 on awards).
In The Easy Rider 39 an award was made following a small claims arbitration and the parties
received privileged reasons separately.40 The award was challenged on grounds of serious
irregularity. Moore-Bick J found that notwithstanding any agreement that the reasons were not to
be used in court proceedings, the court should look at the reasons if they formed the evidence
upon which an allegation of serious irregularity was based.

The LMAA Terms also allow for publication of awards of general interest in such a way that the
anonymity of the parties is preserved. Such awards will normally be published in Lloyds
Maritime Law Newsletter. Paragraph 26 provides that:
If the tribunal considers than an arbitration decision merits publication and gives notice to the
parties of its intention to release the award for publication, then unless either or both parties
inform the tribunal of its or their objection to publication within 21 days of the notice, the award
may be publicised under such arrangements as the Association may effect from time to time.
Notice of intention to publicise an award will be given to the parties. The publication will be so
drafted as to preserve anonymity as regards the identity of the parties, of their legal or other
representatives, and of the tribunal.
Awards deserve particular consideration because they are the sort of document most commonly
disclosed to third parties and they are treated differently to other documents generated in an
arbitration.41 First, the award is subject to the courts supervisory jurisdiction under the 1996 Act,
and may become public if the hearing is open to the public. Secondly, the award may be enforced
by a court abroad under the New York Convention or in England by an application under section
66 of the 1996 Act and may thereby become public. Thirdly, the award contains the tribunals
determination of the issues referred to arbitration and gives rise to an independent obligation to
comply with the award. The awards effect in determining a partys liability and the role of the
reasons in setting out the grounds of that liability, gives them particular legal and commercial
significance. The authorities draw no firm distinction between the disclosure of an award and its
reasons. Generally disclosure of both will go hand in hand, unless, perhaps, the parties have
requested confidential reasons or there is no practical need for disclosure of the reasons (see
Chapter 19 on awards).
In Associated Electric Gas Insurance Services Ltd v European Reinsurance Company of
Zurich 42 two separate arbitrations were commenced between the same parties in relation to a
reinsurance agreement. The defendant sought to rely on the award in one of the arbitrations in the
other on grounds that it gave rise to an issue estoppel on an issue common to both arbitrations.
The Privy Council overturned an injunction restraining disclosure because an agreement on
confidentiality could not be construed as preventing one party from relying upon an award as
having given him rights against another.
In shipping disputes the issue often arises in the context of a chain of contracts: a head charterer
may be able to make good his claim against the shipowner only by reference to an arbitration
award made against the head charterer in favour of the sub charterer. A closely analogous position
might also arise as between the parties to commodity trade contracts whereby goods were sold and
purchased down a line of buyers and sellers.43
In The Sargasso 44 the claimants time-chartered the vessel from the defendants. The claimants
sub-chartered the vessel under a voyage charter for the carriage of propylene. Cargo was
contaminated and the sub-charterers were successful in obtaining an award of damages under the
voyage charter. The claimants then commenced proceedings in court for an indemnity under the
time charter. Clarke J held that in making the time charter it was in the parties reasonable
contemplation that any breach under the time charter would put the claimants in breach of the

voyage charter with the result that they would be liable to pay damages. The claimants were
entitled to recover damages in the amount of the award under the voyage charter, plus interest and
costs, unless it could be shown that the claimants had failed to mitigate their loss, or the award
was such that no reasonable arbitrators could reach on the evidence or perverse in some other
respect.
The significance of the award in determining legal rights and obligations means that disputes
commonly arise as to whether it should be disclosed. In some circumstances it may be
commercially advantageous to allow disclosure of an award to a third party since it may facilitate
payment of the award. Disclosure will typically be disputed if the award reveals sensitive trade
practices or makes it easier for claims to be made against related businesses.45 The exceptions to
confidentiality are explained above. Disclosure of an award in this context will usually only be
permitted if disclosure is reasonably necessary for the protection of the legitimate interests of an
arbitrating party vis--vis a third party in order to found a cause of action against that third party
or to defend a claim (or counterclaim) brought by the third party.46
In Hassneh Insurance Co v Mew,47 following an arbitration between a reassured and its reinsurers,
an award was issued in which the reassured was substantially unsuccessful. It then issued court
proceedings against its brokers claiming damages for negligence in placing the reinsurance. The
reassured wished to disclose to the brokers the award, its reasons, transcripts of witness
statements, statements of case and other documents from the arbitration. Colman J held that the
reassured was entitled to disclose the award and all its reasons but not the other documents.
In Insurance Company v Lloyds Syndicate,48 a reassured had obtained an award against its lead
reinsuring underwriter and sought to disclose that award to the other underwriters. Colman J held
that the leading underwriter was entitled to an injunction restraining disclosure of the award. The
other underwriters were not bound by the decision under the leading underwriters contract. The
purpose for which the award would be used would be to persuade the other underwriters to pay the
claim. The award was not a necessary element in establishing a claim against the other
underwriters and the granting of the injunction would not cause the reassured unconscionable
hardship.

5. CONFIDENTIALITY AND COURT PROCEEDINGS


A further situation where aspects of an arbitration may become public is where the award, the
arbitrator or the conduct of the proceedings are subject to judicial scrutiny. This would include
enforcement proceedings, either abroad or in the English courts.49 The general rule in the English
courts is that arbitration claims are heard in private except for appeals or preliminary issues on
points of law.50 This means that members of the public who are not parties to the proceedings will
not be admitted into the hearing and would not be entitled to obtain a transcript without the courts
permission.51
The practical issues that commonly arise are whether the court hearing should be open to the
public, whether documents used or generated in the proceedings can be made public and whether
any order or judgment should be published.

Court hearing in public or private

The general rule under English law is that court hearings should be in public.52 This reflects the
common law and also the right to a public hearing recognised under Article 6 of the European
Convention on Human Rights and Freedoms.53 However this general rule is subject to exceptions
such as where privacy is necessary to protect personal information or the interests of a child. In
relation to most arbitration claims, however, the starting point is privacy. CPR Part 62.10 provides
that:

(1) The court may order that an arbitration claim be heard either in public or in private.
(2) Rule 39.2 does not apply.
(3) Subject to any order made under paragraph (1)
o (a) the determination of
(i) a preliminary point of law under section 45 of the 1996 Act; or
(ii) an appeal under section 69 of the 1996 Act on a question of law arising out of an
award,
will be heard in public; and
o

(b) all other arbitration claims will be heard in private.


(4) Paragraph (3)(a) does not apply to
o (a) the preliminary question of whether the court is satisfied of the matters set out in
section 45(2)(b); or
o (b) an application for permission to appeal under section 69(2)(b).

In this context an arbitration claim is broadly defined to mean any application to court under the
1996 Act, a claim to determine whether a tribunal has substantive jurisdiction, a claim to declare
that an award is not binding and any other application affecting arbitration proceedings or an
arbitration agreement.54 The balance between the parties preference for privacy and the public
interest in publicity is drawn such that hearings on pure questions of law under sections 45 and 69
are to be heard in public while most other cases are heard in private. In every case however, the
court has discretion as to whether the matter should be heard in private and the parties may make
representations on this point.
The rules favour privacy on grounds of respecting the parties choice of private arbitration.
However as Mance LJ explained in the City of Moscow v Bankers Trust case,55 privacy is only a
starting point that may often give way to a public hearing:
The consideration that parties have elected to arbitrate confidentially and privately cannot dictate
the position in respect of arbitration claims brought to court under r62.10. Such proceedings are
no longer consensual. The possibility of pursuing them exists in the public interest. The courts,
when called upon to exercise the supervisory role assigned to them under the 1996 Act, are acting
as a branch of the state, not as a mere extension of the consensual arbitral process. Nevertheless,
they are acting in the public interest to facilitate the fairness and well-being of a consensual
method of dispute resolution, and both the Rules Committee and the courts can still take into
account the parties expectations regarding privacy and confidentiality when agreeing to
arbitrate.

Judgment published or private


Even if a hearing has been held in private this will not be determinative as to whether the resulting
judgment or order should be published. There is often greater public interest in having judgments
published than in having a hearing open to the public, for instance encouraging consistency of
approach. In addition, the parties privacy can often be protected in a judgment by using
anonymity or avoiding unnecessary disclosure of sensitive material. The distinction between the
privacy of a hearing and the resulting judgment is drawn at common law and in Article 6 of the
European Convention on Human Rights which, on its face, requires a judgment to be pronounced
publicly.
The leading case is City of Moscow v Bankers Trust.56 In the principal judgment Mance LJ
rejected any blanket rule against publication on grounds that it would undermine confidence in
London arbitration. He concluded that judgments should generally be given in public for
arbitration claims if this can be done without disclosing significant confidential information: The
desirability of a public judgment is particularly present in any case where a judgment involves
points or law or practice which may offer future guidance to lawyers or practitioners. He
considered that the public interest in ensuring appropriate standards of fairness in the conduct of
arbitrations militated in favour of a public judgment on applications challenging an award for
serious irregularity. At a practical level he suggested that lawyers could ask a judge to ensure that
reference to sensitive material was avoided in any public judgment.
In City of Moscow v Bankers Trust,57 an award was challenged for serious irregularity and the
hearing was held in private. The judgment was marked private but was mistakenly published in
summary form and in full on an online law reporting service. The case was then removed from the
website and the claimants objected claiming that the judgment should be publicly available. The
Court of Appeal decided that the judgment should remain private but the summary contained no
sensitive information and there should be no restriction on its publication.
The Court of Appeal gave useful guidance but did not draw an absolute rule: it suggested that
there was a broad spectrum of situations where the need for confidentiality would vary and a
judge would have discretion in every case. This means that the starting point is in favour of
publication of judgments but there is a degree of uncertainty as to whether publication of all or
part of a judgment could be prohibited since each case will depend on its facts.

Disclosure of court documents


In the interest of open justice the English rules of court58 allow non-parties (i.e., a person who is
not party to the proceedings) access to many documents on the court records. In relation to
arbitration claims the rules provide that:59An arbitration claim form may only be inspected [by a
non-party] with the permission of the court. In Glidepath v Thompson,60 Colman J explained that
the court would only grant access to arbitration claim forms to a non-party in circumstances where
he could show that the disclosure was reasonably necessary to protect or establish a legal right
(following the exception identified by the Court of Appeal in Ali Shipping Corporation v Shipyard
Trogir 61). The courts discretion to allow a non-party to inspect any court applications or
evidence on the court file should also be exercised by reference to the principles of confidentiality

attaching to arbitral proceedings. A party to the arbitration would normally be treated as a party to
the proceedings for the purpose of obtaining access to the court records, for instance where court
documents have not yet been served on that party.62
In Glidepath v Thompson 63 a dispute under a joint venture had initially been pursued in court and
a freezing order had been obtained in private hearings. The proceedings were then stayed under
section 9 in favour of arbitration. Part of the proceedings related to the transfer of another
company, X, that had employed the applicant. The applicant had a separate claim against X before
an employment tribunal and applied to court to inspect the particulars of claim, all applications
and orders in the proceedings and also the witness statements. Colman J refused the application
since the applicant had failed to show that the documents were reasonably necessary to establish
his claim in the employment tribunal. It was not enough to show that they would be deployed as
evidence.

6. PRACTICE AND REMEDIES


If a party wishes to disclose documents generated in an arbitration, or to invite strangers into a
hearing then the safest option is to seek the consent of the other party to the arbitration. The
consent of the arbitrators should also be sought in relation to hearings and possibly that of the
expert witness if his evidence is to be disclosed.64 If this is not practicable then the courts have
suggested that independent counsels advice to the arbitrating party that disclosure to a third party
is reasonably necessary should normally be conclusive.65 If further difficulties arise then the party
objecting to disclosure can refer the matter to the tribunal or the court (depending on whether the
matter is within the tribunals jurisdiction66 or the parties are willing to refer the matter to court).
If, on the other hand, a party is in control of documents generated in an arbitration and considers
that he may be obliged to disclose them as evidence in another court action (or in an arbitration)
he should ask for the consent of the other arbitrating party to disclose them. In the absence of such
consent he can decline to disclose them. It is for the other party in the court action (or arbitration)
to obtain an order for disclosure (from the court or tribunal as appropriate).67 If the original
arbitrating party continues to object to disclosure it could intervene and seek an injunction
restraining disclosure. A court injunction would probably be most appropriate because it could
bind parties other than the original parties to the arbitration.
The normal remedy for breach of confidence is an injunction restraining disclosure. Monetary
remedies are also available although damages may prove difficult to quantify. An arbitrator may
grant a final injunction and the court may make orders to restrain disclosure if the arbitrators
order would not be effective, for instance due to lack of coercive powers.68 In obtaining an
injunction it is unnecessary to establish prejudice caused by the disclosure since confidentiality is
usually regarded as a sufficient interest for an injunction.69
1 See CPR Part 5.4
2 DAC Report, paragraphs 11-17.
3 The LMAA Terms do not expressly provide for confidentiality except as regards confidentiality
of reasons (paragraph 22 discussed in Chapter 19) and disclosure of documents to third parties in
concurrent hearings (see paragraph 14(b) discussed in Chapter 15). See other institutional rules
(e.g., Article 30 of the LCIA Rules).

4 Esso Australia Resources Ltd v Plowman (Minister for Energy and Minerals) [1995] CLR 10.
5 Oxford Shipping Co Ltd v Nippon Yusen Kaisha [1984] 1 Lloyds Rep 373 at 379.
6 [1993] 2 Lloyds Rep 243 at 246.
7 Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyds Rep 643 at 651. The Court of
Appeal rejected an argument that the term was implied as a matter of business efficacy (in contrast
to Colman J in Hassneh Insurance Co v Mew[1993] 1 Lloyds Rep 243 at 246) since this would
have involved investigating the circumstances at the time of contracting and presumed intentions
ascertained from the notional officious bystander. However the term implied in law is based on
the parties presumed intent in choosing to arbitrate (see Potter LJ at 651).
8 [2003] UKPC 11; [2003] 1 WLR 1041 with respect to Bermudan law but the approach would be
the same for English law.
9 Emmott v Michael Wilson & Partners Limited [2008] EWCA Civ 184; [2008] 1 Lloyds Rep
616, paragraphs 84 and 129.
10 E.g. Emmott v Michael Wilson & Partners Limited [2008] EWCA Civ 184; [2008] 1 Lloyds
Rep 616, paragraph 80. Indeed, in Esso Australia Resources Ltd v Plowman (Minister for Energy
and Minerals) [1995] CLR 10, the case that drew attention to the distinction, Toohey J found at
paragraph 25 that they were not distinct characteristics.
11 Emmott v Michael Wilson & Partners Limited [2008] EWCA Civ 184; [2008] 1 Lloyds Rep
616, paragraphs 79 and 129.
12 [2004] EWCA Civ 314; [2005] QB 207, para 6.
13 Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyds Rep 643, Hassneh Insurance
Co v Mew [1993] 2 Lloyds Rep 243, Dolling-Baker v Merrett [1990] 1 WLR
1205, Emmott v Michael Wilson & Partners Limited [2008] EWCA Civ 184; [2008] 1 Lloyds
Rep 616.
14 CPR Part 31, rule 31.22.
15 Marcel v Commissioner of Police of the Metropolis [1992] Ch 225.
16 Hassneh Insurance Co v Mew [1993] 2 Lloyds Rep 243 at 250.
17 London & Leeds Estates Ltd v Paribas Ltd (No 2) [1995] 2 EG 134 at 137. Mance J (as he then
was) considered it likely that a qualified duty of confidence was also owed by the parties to the
expert witness. See also Neill, Confidentiality in Arbitration [1996] 12 Arbitration
International 287 at 309. However, in Esso Australia Resources Ltd v Plowman (Minister for
Energy and Minerals) [1995] CLR 10 it was common ground that no duty attached to witnesses.
18 Attorney-General v Guardian Newspapers Ltd (No 2) [1990] 1 AC 109 at 281.
19 [1998] 1 Lloyds Rep 643. See also Emmott v Michael Wilson & Partners Limited [2008]
EWCA Civ 184; [2008] 1 Lloyds Rep 616 at para 107.

20 Associated Electric Gas Insurance Services Ltd v European Reinsurance Company of


Zurich [2003] UKPC 11; [2003] 1 WLR 1041, para 20.
21 Emmott v Michael Wilson & Partners Limited [2008] EWCA Civ 184; [2008] 1 Lloyds Rep
616 at paragraph 107, Collins LJ and Carnwarth LJ left open whether there was a separate
exception based on the public interest.
22 [1999] 1 Lloyds Rep 883.
23 Science Research Council v Nasse [1980] AC 1028, Dolling-Baker v Merrett [1990] 1 WLR
1205.
24 Prudential Assurance v Fountain Page [1991] 1 WLR 756 at 765, Mahon v Rahn [1997] 3
WLR 1230 at 1240.
25 Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyds Rep 643.
26 Ibid. at 651. Potter LJ drew an analogy with the implied obligation of confidentiality between
banker and customer. In Emmott v Michael Wilson & Partners Limited [2008] EWCA Civ 184;
[2008] 1 Lloyds Rep 616 the Court of Appeal referred to the Privy Councils reservations
regarding this approach in Associated Electric Gas Insurance Services Ltd v European
Reinsurance Company of Zurich [2003] UKPC 11; [2003] 1 WLR 1041 and considered that the
case law had placed too much reliance on the analogy.
27 Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyds Rep 643 at 651.
28 In Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyds Rep 643 the court maintained
that the duty of confidentiality applied to preclude disclosure of an award against an entity which
was in the same beneficial ownership as the other party to the arbitration. See the DAC Report,
paragraph 16, see S Males, Confidence in Arbitration, LMCLQ [1998] 251 at 257.
29 Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyds Rep 643 at 654.
30 Ibid.
31 Emmott v Michael Wilson & Partners Limited [2008] EWCA Civ 184; [2008] 1 Lloyds Rep
616, paragraph 128.
32 Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyds Rep 643 at 652, referring
to London & Leeds Estate v Paribas Ltd [1995] 2 EG 134.
33 [2008] EWCA Civ 184; [2008] 1 Lloyds Rep 616.
34 [1995] 2 EG 134.
35 See DAC Report paragraph 16.
36 E.g. Commonwealth of Australia v Cockatoo Dockyard Pty Ltd (1995) 36 NSWLR 662, Esso
Australia Resources Ltd v Plowman (Minister for Energy and Minerals) [1995] CLR 10 and ongoing proposals for amendment of the UNCITRAL arbitration rules to allow for greater publicity
in relation to arbitrations involving a state party (typically arising under bilateral investment
treaties).

37 Emmott v Michael Wilson & Partners Limited [2008] EWCA Civ 184; [2008] 1 Lloyds Rep
616, paragraphs 84, 119-124.
38 See Chapter 7.
39 Tame Shipping Ltd v Easy Navigation Ltd [2004] EWHC 1862 (Comm); [2004] 2 Lloyds Rep
626.
40 The applicable LMAA Small Claims Procedure did not provide for privileged reasons although
the judge was mistakenly led to proceed on that basis.
41 Colman Js judgment in Hassneh Insurance Co v Mew [1993] 2 Lloyds Rep 243 provides a
useful discussion relied upon here.
42 [2003] UKPC 11; [2003] 1 WLR 1041 with respect to Bermudan law, but the approach would
be the same for English law.
43 Hassneh Insurance Co v Mew [1993] 2 Lloyds Rep 243 at 248.
44 Stargas SpA v Petredec Ltd [1994] 2 Lloyds Rep 412, see also Sacor Maritima SA v Repsol
Petroleo SA [1998] 1 Lloyds Rep 518. The Sargasso was upheld in The Mass Glory, Glencore
Grain Ltd v Goldbeam Shipping Inc [2002] EWHC 27 (Comm); [2002] 2 Lloyds Rep 244.
45 E.g. Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyds Rep 643.
46 Ibid. at 651.
47 [1993] 2 Lloyds Rep 242.
48 [1995] 1 Lloyds Rep 272.
49 This would arise most commonly under sections 24, 67, 68 and 69 of the 1996 Act, but also in
relation to other arbitration claims such as a challenge to the tribunals fees.
50 CPR Part 62.10(3).
51 CPR Practice Direction to Part 39.
52 CPR Part 39.2.
53 Given effect by the Human Rights Act 1998.
54 CPR Part 62.2.
55 Department of Economic Policy of the City of Moscow v Bankers Trust Co [2004] EWCA Civ
314; [2005] QB 207, paragraph 34.
56 Department of Economic Policy of the City of Moscow v Bankers Trust Co [2005] QB 207,
para 39.
57 Ibid.
58 CPR Part 5.4.
59 Practice Direction at CPR 62.4 paragraph 5.1.

60 [2004] EWCA Civ 314; [2005] 2 All ER (Comm) 833.


61 [1998] 1 Lloyds Rep 643.
62 Advance Specialist Treatment Engineering Ltd v Cleveland Structural Engineering (Hong
Kong) Ltd [2000] 2 All ER (Comm) 189.
63 [2004] EWCA Civ 314; [2005] 2 All ER (Comm) 833. Note under the amended CPR Rule
5.4C the applicant would no longer need permission to inspect the particulars of claim in the
original proceedings.
64 London & Leeds Estates Ltd v Paribas Ltd (No 2) [1995] 2 EG 134 at 137.
65 Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyds Rep 643 at 653, Hassneh
Insurance Co v Mew [1993] 2 Lloyds Rep 243 at 249.
66 Usually the matter will be within the scope of the arbitration clause, see Emmott v Michael
Wilson & Partners Limited [2008] EWCA Civ 184; [2008] 1 Lloyds Rep 616.
67 Hassneh Insurance Co v Mew [1993] 2 Lloyds Rep 243 at 251-252.
68 1996 Act, sections 44 and 48(5).
69 Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyds Rep 643 at 653, Hassneh
Insurance Co v Mew [1993] 2 Lloyds Rep 243 at 249. Department of Economic Policy of the City
of Moscow v Bankers Trust Co [2004] EWCA Civ 314; [2005] QB 207, paragraph 46.

Chapter 14

Remedies for Delay


Remedies for Delay

1. Introduction
2. Contractual provisions
3. The duty of the tribunal and the parties to avoid delay
4. Remedies under section 41 of the 1996 Act

1. INTRODUCTION
Delay is generally perceived to be a menace in arbitration. It is contrary to the intended purpose of
arbitration, namely speedy and efficient dispute resolution. Delay makes the arbitral process more
expensive and can compromise documentary and witness evidence.
Delay can arise at every stage of an arbitration, the usual causes being a lack of will or resources
to progress the arbitration, a deliberate tactical preference for allowing time to lapse, lack of
authority to settle or pursue the matter, or difficulties in gathering evidence.
Dealing with delays in arbitration was one of the specific objectives of the 1996 Act: as the DAC
stated, the avoidance of unnecessary delay in arbitration is a fundamental aspect of justice and, as

such, a necessary requirement of a dispute resolution system which is based upon obtaining a
binding decision from a third party.1 The provisions of the 1996 Act seek to prevent delays from
arising (by placing parallel duties on the parties and on the tribunal to progress the arbitration with
expedition) and also to provide remedies when delays do occur. In the context of LMAA
arbitrations, there are also contractual provisions (governing timetabling, peremptory orders and
the like) which aim to minimise delays. This chapter will seek to examine those provisions (both
statutory and contractual) that are relevant in maritime arbitration.

2. CONTRACTUAL PROVISIONS
The arbitration agreement, or more commonly any applicable arbitration rules, may include
provisions designed to address the problem of delay. Usually such terms are designed to prevent
delays from arising at all. Schedule 2 of the LMAA Terms, for example, sets out a fairly brisk
timetable, to be adhered to by the parties unless the tribunal orders otherwise. Schedule 2 also
includes provisions specifically aimed at minimising delays. Supporting documents relevant to the
issues between the parties are in most cases to be served with written submissions. An allegation
that the claimant has failed to disclose all supporting documents will not normally justify a delay
in service of defence submissions (paragraph 2). Similarly, Schedule 2 provides for written
witness statements to stand as evidence in chief (paragraph 12) and expressly requires all
communications regarding procedural matters to be made expeditiously (paragraph 14). These
provisions may be backed by peremptory orders (pursuant to the powers conferred by the 1996
Act) in appropriate cases. These provisions, all designed to avoid unnecessary delay, are discussed
in detail in Chapter 12.
Apart from the provisions of the LMAA Terms, it is relatively rare for the parties to agree express
provisions conferring specific powers upon the tribunal entitling it, for example, to dismiss a
claim in the event of delay. The tribunals powers in this respect will, in most arbitral proceedings,
derive from the supportive provisions of the 1996 Act rather than from expressly negotiated terms
in the arbitration agreement.2

3. THE DUTY OF THE TRIBUNAL AND THE PARTIES TO AVOID DELAY

The nature of the duty


The 1996 Act places parallel mandatory duties upon the tribunal and the parties to avoid delay in
the progress of the arbitral proceedings. Section 33 of the Act requires the tribunal to adopt
procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or
expense. Section 40 requires the parties to do all things necessary for the proper and expeditious
conduct of the arbitral proceedings, including complying without delay with any determination
of the tribunal as to procedural or evidential matters, or with any order or directions of the
tribunal. The aim of each of these provisions is to give effect to the central principle behind the
Act, expressed in section 1, of obtaining a fair resolution of disputes without unnecessary delay or
expense. Sections 33 and 40 are considered in more detail in Chapter 12.
Although (as discussed below) the remedies conferred by the Act for breaches of these mandatory
provisions are relatively limited, the enactment of sections 33 and 41 has, in practice, helped to

reduce delays in maritime arbitrations. Tribunals are empowered to set firm deadlines or
timetables and to tailor the procedures of the arbitral reference to avoid any unnecessary delay.

Remedies for breach of duty


Breach of section 33
The remedies conferred by the 1996 Act for breach of the duties are fairly limited. In the case of a
breach by the tribunal of section 33, the remedies available to the parties are removal of the
tribunal pursuant to section 24, or (where an award has been made) challenging the award
pursuant to section 68. These remedies are available only where substantial injustice can be
established, and are intended to provide a long-stop.3
Breach of section 40
The remedies for breach of the parties duty under section 40 are not specifically prescribed by the
1996 Act, and have been the subject of some debate.4 In practice, the remedies provided by
sections 41 and 42 of the Act are the effective remedies for breach of the duties under section 40.
Enforcement of an award might also be resisted under section 66 or 101 of the 1996 Act where a
tribunal had failed to address a breach of section 40.5

4. REMEDIES UNDER SECTION 41 OF THE 1996 ACT


The main remedy for really serious delays in progressing an arbitration (where a claim has simply
been allowed to go to sleep) is provided by section 41(3) of the 1996 Act, which provides that:
If the tribunal is satisfied that there has been inordinate and inexcusable delay on the part of the
claimant in pursuing his claim and that the delay

(a) gives rise, or is likely to give rise, to a substantial risk that it is not possible to have a fair
resolution of the issues in that claim, or
(b) has caused, or is likely to cause, serious prejudice to the respondent, the tribunal may
make an award dismissing the claim.

Section 41(3) replicates, in almost identical terms, the provisions previously contained in section
13A of the Arbitration Act 1950, itself introduced by way of amendment to the 1950 Act in 1992.
Section 13A of the 1950 Act was intended to replicate the inherent power of the High Court to
dismiss a claim for want of prosecution. It was intended that the power conferred on the tribunal
should be applied and interpreted in the same way as the power of the High Court. This was clear
both from the wording of the provision (which adopted the phraseology used in the leading cases
on the courts power to dismiss claims6) and section 13A(3), which specifically conferred power
on the Secretary of State to amend section 13A by way of statutory instrument for the purpose of
keeping the provision made by this section and the corresponding provision which applies in
relation to proceedings in the High Court in step. The clear intention, at the time section 13A was
introduced, was for the power of arbitral tribunals to replicate the power of the High Court.
However, matters have moved on since 1992. In particular, one effect of the introduction of the
Civil Procedure Rules (CPR) in High Court proceedings was to do away with the old power to
dismiss for want of prosecution, and to replace it with a different, more flexible, power to deal

with delays or breaches of procedural orders. Following the introduction of the CPR, the High
Courts power to dismiss a claim no longer turns upon proof of inordinate or inexcusable
delay but, rather, upon failure to comply with the rules or orders of the court. Furthermore, the
prime focus of the court is no longer the question of whether either party has suffered prejudice as
a result of the delay but, rather, upon the more general question of whether it is still possible to
conduct a fair trial in accordance with the overriding objectives set out in the CPR, Part 1.7 In
the context of court proceedings, this involves considering whether the allocation of further court
time to the proceedings in question would be fair to other court users, having regard to the delays
or breaches of orders to date.8 Nor, under the CPR, is the High Court limited to a power to dismiss
a claim (or counterclaim): instead, the court is encouraged to tailor remedies to the particular
case.9 The old power to dismiss for want of prosecution (upon which section 13A and then section
41(3) were based) has been effectively superseded by a more wide-ranging and flexible basis of
intervention in court proceedings.
For these reasons, it is thought that the power of an arbitral tribunal to dismiss a claim for delay is
no longer in step with the broader power of the High Court post-CPR. This view is confirmed
by the fact that section 41(3) includes no provision empowering the Secretary of State to effect
amendments for the purpose of keeping the two regimes in step. Authorities on the CPR powers to
strike out claims will therefore be of limited relevance to the application and exercise of the
tribunals power under section 41(3). While CPR authorities may be of assistance upon some
specific points (for example, in identifying the factors that are relevant to the existence of
prejudice), on the more general approach to section 41(3), tribunals will, in practice, continue to
obtain guidance from pre-CPR authorities.
When first introduced, the tribunals powers to strike out were perceived as an important sanction
against delay. In practice, however, this power is now relatively rarely exercisedlargely because
arbitrators are more proactive in keeping arbitrations moving so that the type of delay attracting a
strike out will be less common

The application of section 41(3)


Section 41(3) applies to all arbitrations unless the parties have excluded it by agreement. The
LMAA terms contain no such agreement. Section 41(3) provides that:
If the tribunal is satisfied that there has been inordinate and inexcusable delay on the part of the
claimant in pursuing his claim and that the delay:

(a) gives rise, or is likely to give rise, to a substantial risk that it is not possible to have a fair
resolution of the issues in that claim, or
(b) has caused, or is likely to cause, serious prejudice to the respondent, the tribunal may
make an award dismissing the claim.

If the criteria set out in section 41(3) are established, then the tribunal has the discretion to decide
whether or not it should dismiss the claim. Section 41 only empowers the tribunal to dismiss or
not dismiss the claim: it does not allow an alternative remedy. However, there would seem to be
no reason why a tribunal could not impose alternative remedies as part of the exercise of its more
general procedural powers. For example, where a tribunal felt that the circumstances of the case

did not warrant the draconian remedy of dismissal of the claim, but felt that the claimant should
not get off scot free, then it would be open to the tribunal, pursuant to its general discretion to
award costs, to penalise the claimant by depriving it of part of its costs, or ordering it to pay costs
on an indemnity basis. Where a claimant has been responsible for delay the tribunal may also
exercise its discretion against allowing interest that could otherwise be awarded. A tribunal could
also exercise its general procedural powers by, for example, imposing conditions on the future
conduct of the claim. Ultimately, though, where there is a substantial risk that a fair trial is not
possible, a strike-out may be the most appropriate remedy. Similarly, if the tribunal feels that the
claimants claims should be allowed to proceed in part only, it would probably be open to the
tribunal to strike out individual causes of action or allegations, or to refuse to admit evidence on
certain issues or allegations, either pursuant to section 41(3) or its general procedural powers. In
this way, some of the flexibility conferred upon the High Court10 by the CPR regime can, in
practice, be achieved where justice so demands.

The principles governing section 41(3)


Pre-CPR authorities which address, for example, the meaning of inordinate and inexcusable
delay and prejudice remain relevant to applications under section 41(3). In particular, the
guidelines laid down by the Court of Appeal in Trillv Sacher 11 provide a useful and concise guide
to the factors which will be taken into account.
Inordinate delay
Inordinate means excessive. It is not a term which can be precisely defined: What is or is not
inordinate delay must depend upon the facts of each particular case.12 It will normally be
measured against what is regarded as acceptable according to the standards of those normally
involved in that type of arbitration (e.g., arbitrators and legal and P & I representatives), having
regard, of course, to the requirements of sections 33 and 41. The time limits or timetables
applicable under arbitration rules may provide helpful guidelines; however, regard must always be
had to the circumstances of the particular case. In a weighty dispute, for example, more time will
usually be permitted for the gathering of evidence than in a simple documents-only arbitration.
In The Finnrose,13 Rix J suggested that the question of whether delay should be regarded as
inordinate and inexcusable depended upon the intention of the parties as to the speed with which
the proceedings should be conducted. Where, as is common in maritime disputes, the parties have
agreed to a one-year time limit such as the Hague Rules one-year time-bar then they ought to
proceed with the despatch inherent in that timescale.
When applying under section 41(3), the respondent may not rely upon delay for which it is itself
responsible, including delay for which it is in part responsible.14 Similarly, where a respondents
conduct induces a claimant to incur further costs in the reasonable belief that the respondent
intends to exercise its right to proceed to a hearing notwithstanding the claimants previous delay,
then the respondent may be prevented from relying on that delay as a matter of discretion.15
The relevance of pre-commencement delay and limitation periods
Section 44(3) requires proof of delay in pursuing the claim. It is not clear if this wording would
encompass delay in the commencement of arbitration proceedings, or whether only post-

commencement delay in pursuing the arbitration falls within the provision. By analogy with preCPR authorities in the High Court, delay in the commencement of proceedings would probably
not in itself satisfy the threshold test of establishing that there has been inordinate and
inexcusable delay on the part of the claimant in pursuing his claim. It may, however, be of
relevance to the tribunals discretion if the section 41(3) criteria are established. The following
principles may be stated:

(1) Delay in commencing an arbitration cannot, as a general rule, be described as inordinate


if the arbitration was commenced within the relevant period of limitation. This results in part
from the fact that the claimant should be permitted to enjoy the period which Parliament has
allowed for making a claim unless the parties have expressly agreed to curtail that
period.16 Furthermore, it would be pointless to dismiss a claim before the limitation period
has expired because the claimant might be permitted simply to commence a new
reference.17 However, there may be exceptional cases in which a claim will be dismissed even
before the expiry of the limitation periodfor example, where the expiry of the limitation
period is open to serious argument,18 or where the respondent can show that the claimant
might not be able to commence a new reference.19
(2) Where a claimant delays the commencement of proceedings until towards the end of a
period of limitation, he then comes under a particular obligation to proceed with the case with
reasonable diligence.20 A tribunal is likely to look particularly strictly at any delay arising
after the expiry of the limitation period and may characterise such delay as inordinate even
though a similar lapse of time might have been treated less strictly had the arbitration been
commenced earlier.
(3) Once the limitation period has expired the tribunal is entitled to take account of all the
earlier periods of inexcusable delay since the commencement of the arbitration. These periods
can include:
o (a) periods of delay occurring before the expiry of the limitation period which, at an
earlier stage, could not be treated as inordinate;21 and
o (b) periods of delay upon which the respondent could not previously have relied because
it induced the claimant to incur further costs during that period in the reasonable belief
that the arbitration was going to proceed.22

Inexcusable delay
Inordinate delay is prima facie inexcusable, and once established, the tactical burden of proof
switches to the claimant to make out a credible excuse.23 For example, a claimant may be able
to show that the respondent agreed to allow an extension of time (though such an excuse would no
doubt need to be assessed in light of whether such an agreement was consistent with sections 33
and 41 and, therefore, enforceable). Evidence of the existence of without prejudice negotiations
during the relevant period is commonly relied upon as a credible excuse; however, the mere
desultory pursuit of such negotiations will not prevent a delay from being inexcusable.24 Although
evidence of the existence of without prejudice negotiations is admissible on a section 41(3)
application, the content of such negotiations should not normally be disclosed to the tribunal as
this might influence the tribunals views of the merits of the case.25 The usual solution is simply to
give details of the dates and duration of any correspondence or meetings.

Pre-commencement delay is relevant to excusability because a late start makes it more incumbent
upon a claimant to proceed with all due speed. A pace which might have been excusable if the
arbitration had been started sooner may be considered inexcusable due to the time that has already
passed prior to commencing the reference.26
Serious prejudice or substantial risk of unfair resolution of disputes
Assuming the respondent can establish inordinate and inexcusable delay on the part of the
claimant, he must then go on to satisfy one of two alternative threshold criteriaeither that the
delay gives rise, or is likely to give rise, to a substantial risk of unfairness, or that the delay has
caused, or is likely to cause, serious prejudice to the respondent. Obviously the two grounds
overlapin order for a resolution of issues to be carried out fairly, a tribunal must feel confident
that it can make an informed decision on the true facts.27 This will not be possible where one
partys ability to present its case has been prejudiced. In practice, a respondent will usually seek to
establish the existence of prejudice.
Serious prejudice
The one area in which no overlap occurs is where prejudice unrelated to the resolution of issues in
the arbitration may be found to exist, for example prejudice to business interests, damage to
professional reputation28 or a change in the respondents liability insurance during the period of
delay.29 However, these cases are relatively rare and the alleged prejudice will usually consist of
some element of procedural unfairness which has resulted from the delay. The requirement of
serious prejudice will usually be satisfied by proof that the delay has resulted in deterioration of
the evidence necessary to the respondents case. The question of whether serious prejudice exists
will largely depend on the particular type of issues at stake and the type of evidence relied on.
In many cases, a lapse of time will impair the memory of witnesses or make it more difficult to
trace relevant documents. In other cases, witnesses may die or become untraceable. There is a
distinction between issues which depend upon the credibility of witnesses and those which depend
upon the witnesses memory. Where a case turns upon conflicting testimony about an event which
is unlikely to have been forgotten(e.g., a fraudulent agreement or a conspiracy) the case falls
into the former category and it will be more difficult to show that the evidence has been affected
by the passage of time.30 By contrast, in relation to more routine events, uncorroborated witness
evidence may well have been impaired: the evidence of an eyewitness or of a witness who will
testify to the words used when an oral representation was made is likely to be much more
seriously impaired by the lapse of time than the evidence of somebody who can rely upon
contemporaneous documents.31
It is clear that the respondent must identify in some detail how the evidence will be impaired by
the delay.32 This will usually involve identifying particular witnesses or categories of unobtainable
documents. In relation to witness evidence, for example, the respondent should usually be able to
show that no statement has been taken, that there is no means of the witness refreshing his
memory, or that the witness has become unavailable.33 The risks inherent in making such
submissions are obvious: if the application fails, the applicant will be obliged to proceed to a
determination of the merits on the basis of evidence which he has himself sought to discredit.
However, the tribunal is not concerned to try the case at this stage and it is not necessary to

identify in which respects the witnesses memory is affected. Instead, the tribunal can and should
assess the likely general effect of the delay upon the witness and other evidence. In order to do so
it may draw inferences based on all the material before it.34 A tribunal may be willing to draw an
inference of prejudice from a relevant period of delay lasting more than a year but it is more
doubtful where the relevant period is only a few months against a total delay of several years.
The tribunal must be satisfied that there is a causal link between the inordinate delay relied on and
the prejudice complained of. The damaging effect of any delay is cumulative and prejudice arising
from pre-commencement delay will be relevant. Indeed, the additional prejudice arising from
delay after commencement need only be something more than minimal compared to the
prejudice which may have already been caused by pre-commencement delay.35 When assessing
prejudice, the tribunal should consider the increment in prejudice caused by the relevant period of
inordinate delay as against the total overall delay after the events in issue. The delay complained
of must cause some material prejudice (even if it is little more than minimal compared to existing
prejudice).
Substantial risk of unfair resolution of the dispute
This alternative ground overlaps to a large degree with the existence of prejudice. It will be rare
for a respondent to establish this ground without also establishing that the delay has prejudiced his
ability to present his case. But such cases do occasionally arise. For example, where the overall
costs of the trial have been substantially increased by the claimants delays, then the alternative
ground might, exceptionally, be established.36

Practice
If an application for an award dismissing the claim is made pursuant to section 41(3), the tribunal
should give each party the opportunity to make written or oral submissions (or both). It is usual
for both parties to serve detailed written submissions attaching relevant documents if necessary
and, possibly, affidavit or witness statement evidence. A decision or agreement can then be
reached as to whether the application should be dealt with on the basis of documents alone or in
an oral hearing. Where the reference forms part of a chain of arbitrations, and where applications
to dismiss the claims are being made in each reference in the chain, it will usually be advisable (if
at all possible) to seek to consolidate the references, or to agree upon concurrent hearings, to
minimise the possibility of inconsistent decisions (such as some, but not all, of the claims being
dismissed).37
Where both claims and counterclaims are raised in an arbitration and there are cross-applications
to dismiss each, the tribunal has power to dismiss either, both, or neither. A tribunal may exercise
its power under section 41(3) of its own initiative, because if the delay is such as to prevent it
from reaching a fair and safe award on the evidence then it would be unfair and a breach of
section 33 to attempt to do so.38 In such a situation (extremely rare in London maritime
arbitration) the tribunal should give the parties warning of its intention to dismiss the claims and
give an opportunity for submissions from each side.
Following submissions, it is important that the tribunal should reach its decision promptly, as any
further steps in the arbitration will usually be postponed until the determination of the dismissal

application. The tribunals decision will be contained in an award and will usually include an
order as to costs. If an award is made dismissing the claim, then both the costs of the application
to dismiss as well as the costs of the arbitration will usually be awarded to the successful
respondent. If an appeal is anticipated, then the parties should request a reasoned
award.39 However, because of the discretionary nature of the jurisdiction to dismiss claims,
permission to appeal will be only granted in the rarest cases.

Failure to make submissions: section 41(4)


Where a party fails to attend an oral hearing of which notice was given, or fails after due notice to
submit written arguments or evidence, then unless he can show sufficient cause, the tribunal is
specifically empowered by section 41(4) to proceed to an award on the basis of the evidence
before it. Of course, the tribunal would only do so where it was sure that each party had been
given a reasonable opportunity to put its case.40 If reasonable notice has been given, but the
party concerned has failed without good reason to avail itself of that opportunity, then the tribunal
is entitled to avoid any further delay by proceeding straight to an award. In practice, the tribunal
will usually want to be very certain that the party concerned has received and understood the
notice requiring submissions to be made. This is straightforward where the party concerned is
represented by English solicitors, but may be more difficult where, for example, those solicitors
have come off the record, or where the party concerned fails to acknowledge receipt of notice. In
such circumstances, the tribunal will usually ensure that more than one notice is given, possibly
served in a number of ways (e.g., registered post, e-mail, fax and/or telephone).

Peremptory orders: section 41(5)


Sections 41(5) to (7) of the 1996 Act provide as follows:

(5) If without showing sufficient cause a party fails to comply with any order or directions of
the tribunal, the tribunal may make a peremptory order to the same effect, prescribing such
time for compliance with it as the tribunal considers appropriate.
(6) If a claimant fails to comply with a peremptory order of the tribunal to provide security for
costs, the tribunal may make an award dismissing his claim.
(7) If a party fails to comply with any other kind of peremptory order, then, without prejudice
to section 42 (enforcement by court of tribunals peremptory orders), the tribunal may do any
of the following
o (a) direct that the party in default shall not be entitled to rely upon any allegation or
material which was the subject matter of the order;
o (b) draw such adverse inferences from the act of non-compliance as the circumstances
justify;
o (c) proceed to an award on the basis of such materials as have been properly provided to
it;
o (d) make such order as it thinks fit as to the payment of costs of the arbitration incurred in
consequence of the non-compliance.

These provisions empower the tribunal to make peremptory orders in the event of failure by a
party to comply with an order or direction. They also provide for the consequences of failure to

comply with the peremptory order itself, ranging from drawing adverse inferences to proceeding
to an award on the basis of materials before the tribunal. In arbitrations under LMAA Terms, these
provisions are supplemented by paragraph 14(c) of the Terms, which entitles the tribunal to stay a
claim in the event of breach of an order requiring the provision of security for costs.
Apart from the range of sanctions provided for by section 41(5), the tribunal cannot itself enforce
the peremptory order. However, section 42 of the 1996 Act provides for such orders to be
enforced by the court in appropriate cases.41The principal significance of this power is that where
the court makes an order under section 42, any further breach of the peremptory order will amount
to a contempt of court. The tribunal may itself apply to the court under section 42 (though
presumably it would in most cases be reluctant to do so unless given an indemnity in respect of
costs); alternatively, a party may apply with the permission of the tribunal or where the parties
have already expressly agreed that the section 42 powers should be available.
Peremptory orders are considered in more detail in Chapter 12.
1 Paragraph 18 of the DAC Report.
2 The LMAA Terms are something of a half-way house: they include no specific term
conferring remedies in the event of delay, but do expressly provide (at paragraph 7(a)) for the
applicability of the 1996 Actincluding the remedies conferred by the Act for dealing with delay.
3 See further, Chapters 11 and 22.
4 Mustill and Boyd, for example, have suggested that an action in damages for breach of an
implied term of the arbitration agreement would lie where section 40 has been breached: see
Mustill & Boyd, 2001 Companion, pp. 316-317. However, this analysis was rejected by Aikens J
in Elektrim SA v Vivendi Universal SA & ors [2007] EWHC 11 (Comm); [2007] 2 Lloyds Rep 8.
5 A suggestion made by Aikens J in Elektrim SA v Vivendi Universal SA & Ors, at paragraph 130
of the judgment.
6 In particular Birkett v James [1978] AC 297: see per Rix J in James Lazenby &
Co v McNicholas Ltd [1995] 1 WLR 615 at 629.
7 E.g., Moy v Peltman-Smith [2005] UKHL 71; [2005] 1 All ER 903.
8 E.g., Purefuture v Simmons & Simmons CA, 25 May 2000; Arrow Nominees Inc v Blackledge &
ors CA, 22 June 2000.
9 E.g., in Axa Insurance Company Ltd v Swire Fraser Ltd CA, 9 December 1999, the court
declined to strike out a claim, but penalised the claimant by ordering it to pay the costs of the
(unsuccessful) strike out application (which it had brought upon its own head) and also by striking
out some of the wider allegations in the Points of Claim.
10 Cf. Axa Insurance Co v Swire Fraser CA, 9 December 1999.
11 [1993] 1 WLR 1379 (subject to Roebuck v Mungovin [1994] 2 WLR 290 at 298); see
also Shtun v Zalejska [1996] 1 WLR 1270.

12 Allen v Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 229, 268, cited in Trill v Sacher by Neill
LJ at 1398.
13 Fort Sterling v South Atlantic Cargo Shipping [1994] 1 Lloyds Rep 559 at 564.
14 Johnstone v Bloomsbury Health Authority 6 Dec 1993, unreported, Clarke J.
15 Allen v Sir Alfred McAlpine & Sons Ltd [1968] 2 QB 229 at 260; Trill v Sacher [1993] 1 WLR
1379 at 1398; Roebuck v Mungovin [1994] 2 WLR 290; Re Manlon Trading [1995] 3 WLR 271.
16 James Lazenby v McNicholas Construction Ltd [1995] 1 WLR 615 at 630.
17 See Birkett v James [1978] AC 297 at 320-321. However, the question of whether a claimant
could commence a new arbitration was left open in Lazenby v McNicholas [1995] 1 WLR 615 at
631. Under the CPR, such a second action may itself be struck out if inconsistent with the
overriding objectivein particular, the need to allot the courts limited resources to other cases:
see Securum Finance Ltd v Ashton [2000] 3 WLR 1400. Such considerations do not arise in
arbitration.
18 Barclays Bank v Miller [1990] 1 WLR 529.
19 Wright v Morris 25 October 1988, referred to in Barclays Bank v Miller, above.
20 Birkett v James at p 323, cited in Trill v Sacher at p 1398.
21 Rath v Lawrence & Partners [1991] 1 WLR 399.
22 Trill v Sacher (guideline 9).
23 Trill v Sacher (guidelines 2 and 4).
24 E.g. The Mouna [1991] 2 Lloyds Rep 221.
25 Cf. Family Housing Association v Michael Hyde [1993] 1 WLR 354 at 363: on an application
to dismiss court proceedings for want of prosecution (pre-CPR), without prejudice
communications were admissible because they would not be available to the trial judge. The same
is clearly not true of arbitrations, where the same tribunal hears both the dismissal application and
the substantive proceedings.
26 Birkett v James [1978] AC 297 at 322.
27 Wilson (Paal) & Co A/S v Partenreederei Hannah Blumenthal, The Hannah
Blumenthal [1983] 1 AC 854 at 919.
28 Bliss v Lambeth Southwark & Lewisham HA [1978] 1 WLR 782.
29 Antcliffe v Gloucestershire HA [1992] 1 WLR 1044.
30 Rath v Lawrence [1991] 1 WLR 399.
31 Trill v Sacher at 1399 (guideline 11).
32 Shtun v Zalejska [1996] 1 WLR 1270.
33 Hornagold v Fairclough, The Times, 3 June 1993; [1993] PIQR P400.

34 Shtun v Zalejska [1996] 1 WLR 1270.


35 Department of Trade & Industry v Chris Smaller (Transport) Ltd [1989] AC 1197.
36 Cf. Arrow Nominees v Blackledge & ors [2000] EWA Civ 200; [2000] 2 BCLC 167.
37 In LMAA arbitrations, the LMAA Terms permit the tribunal to order concurrent hearings: see
Chapter 15.
38 See per Beldam LJ in the judgment of the Court of Appeal in LOffice Cherifien des
Phosphates v Yamashita Shinnihon Steamship Co The Boucraa [1993] 3 WLR 266 at 283.
39 See Chapter 19 and paragraph 22 of the LMAA Terms.
40 Section 33 of the 1996 Act.
41 See further Chapter 23 on enforcement.

Chapter 15

Arbitration and Third Parties


Arbitration and Third Parties

1. Introduction
2. Consolidated and concurrent hearings
3. Practice in multi-party disputes
4. Costs and third parties
5. Agents and arbitration
6. Assignment
7. Insurers
8. Contracts (Rights of Third Parties) Act 1999
9. Effects of arbitration awards on third parties 10. Competition law issues

1. INTRODUCTION
Arbitration arises out of an agreement which is usually contained in a contract between two
parties. The arbitrators authority derives solely from that agreement. This offers a stark contrast
to the much wider inherent and statutory jurisdiction of the High Court which, in relation to court
proceedings, enables it to:

(a) join additional parties;


(b) make costs orders against third parties (i.e., parties who are not privy to the proceedings);
(c) order third parties to produce documents; and
(d) consolidate separate proceedings.

The essentially consensual basis of arbitrators powers means that they have no inherent powers to
make orders binding third parties (i.e., parties who are not privy to the arbitration agreement
pursuant to which the arbitrator is appointed). This can make it difficult to ensure a convenient

and streamlined procedure in disputes involving more than two parties. In addition, obligations of
confidentiality are implied into the arbitration agreementthis may raise difficult issues as to
whether an award or evidence disclosed in an arbitration can be shown to third parties.1
Multi-party disputes are extremely common in the context of maritime arbitration-there may be
several contracts between different parties relating to a particular transaction. Typically, a chain of
two or more contracts may be concluded on similar terms: for instance back-to-back charterparties
or a string of sale contracts. If a dispute arises between the parties to one of the contracts, then the
respondent will usually seek to pass liability up or down the chain. It is also common for two or
more claims arising out of the same facts to be asserted by or against the same party (e.g., cargo is
damaged at sea and claims are brought against the shipowner by both the bill of lading holder and
the charterer). Triangular claims also occasionally arise: for example a sub-charterer claims
against the shipowner and time-charterer, who then assert claims against each other. Multi-party
disputes may also arise where there are more than two parties to the relevant contract or
arbitration clause, for example in cases of assignment or where the Contracts (Rights of Third
Parties) Act 1999 is applicable. Situations can also arise where there are a number of disputes
between different parties, all relating to similar facts, for example the US soya-bean embargo.
The common feature of these types of dispute is that the claims between the various parties will
generally raise common issues of fact and law. Justice requires that the outcome of the claims
should be consistent as far as possible, particularly where a chain of contracts is on back-to-back
terms. Ideally, all the claims should be decided at the same time before the same tribunal to avoid
inconsistent findings and to minimise costs. The parties can agree to such a procedure (e.g., where
chain claims arise) and arbitration rules sometimes provide (more typically in commodities
disputes than shipping) for the parties in the middle to drop out of the arbitral process for practical
purposes such as serving submissions. However, procedural problems can arise in multi-party
disputes if one of the claims is not referable to arbitration (because it arises in tort or if the
contract does not contain an arbitration clause) or one of the parties refuses to co-operate in
appointing a common tribunal or in having the claims heard concurrently. The result may be two
separate sets of proceedings, with increased costs, difficulties in obtaining evidence and a risk of
inconsistent results.2 This sort of inconvenience is accepted as a common feature of commercial
life and an unavoidable consequence of the parties choice of arbitration to resolve their
disputes.3

2. CONSOLIDATED ARBITRATIONS AND CONCURRENT HEARINGS


The courts have wide powers for streamlining multi-party disputes in court (e.g. by joining third
parties to existing proceedings, or ordering separate proceedings to be consolidated or heard
concurrently). English courts (unlike those in the Netherlands) do not have any inherent or
statutory powers to intervene to make such orders in an arbitration.4 Arbitrators also have no
inherent powers to make orders for consolidated arbitrations or concurrent hearings as their
authority is derived solely from the arbitration agreement. The concept of private arbitrations
derives simply from the fact that the parties have agreed to submit to arbitration particular disputes
arising between them and only between them.5
The question of whether the courts (or an arbitral tribunal) should have statutory powers to make
orders for concurrent or consolidated hearings in arbitration has long been controversial.6 Such

powers would have the immediate attraction of avoiding inconsistent findings and the unnecessary
time and expense involved in separate, but related, proceedings. However, the 1996 Act expressly
excludes such a power on the part of the tribunal in the absence of consent by the parties and it
implicitly excludes court intervention.7 The DAC considered that the convenience of
consolidation and concurrent hearings did not justify the way in which such powers would
undermine the consensual and confidential nature of arbitration. It would amount to a negation of
the principle of party autonomy to give the tribunal or the court power to order consolidation or
concurrent hearings. Indeed, it would to our minds go far towards frustrating the agreement of the
parties to have their own tribunal for their own disputes.8 There may also have been fears that
court powers of intervention to consolidate arbitral proceedings might make London a less
attractive venue for international commercial arbitration.
It is clear, however, that consolidation and concurrent hearings may be achieved with the
agreement of all parties concerned (an agreement between the parties to just one of the arbitrations
could not bind third parties). Such agreement may be achieved in the arbitration clause, or the
arbitration rules under which the arbitrations are being pursued (see the LMAA Terms below) or
by means of an ad hoc agreement between the parties. Section 35 of the 1996 Act provides that:

(1) The parties are free to agree


o (a) that the arbitral proceedings shall be consolidated with other arbitral proceedings; or
o (b) that concurrent hearings shall be held on such terms as may be agreed.
(2) Unless the parties agree to confer such power on the tribunal the tribunal has no power to
order consolidation of proceedings or concurrent hearings.

The courts may not have the power to consolidate arbitral proceedings but they have other means
of influencing the conduct of multi-party disputes. For example, where a court is asked to exercise
its powers of appointment it can ensure that common arbitrators are appointed over related
references9 or refuse to appoint an arbitrator where one claim is already being litigated in
court.10 The court may also stay court proceedings pending determination of a related dispute in
arbitration.11

Arbitration under LMAA Terms


The LMAA Terms make express provision for separate but related disputes. Paragraph 14
provides that:
In addition to the powers set out in the [1996] Act, the tribunal shall have the following specific
powers to be exercised in a suitable case so as to avoid unnecessary delay or expense, and so as to
provide a fair means for the resolution of the matters falling to be determined.

(b) Where two or more arbitrations appear to raise common issues of fact or law, the tribunals
may direct that the two or more arbitrations shall be heard concurrently. Where such an order
is made, the tribunals may give such directions as the interests of fairness, economy and
expedition require including:

o
o

(i) that the documents disclosed by the parties in one arbitration shall be made available
to the parties to the other arbitration upon such conditions as the tribunals may determine;
(ii) that the evidence given in one arbitration shall be received and admitted in the other
arbitration, subject to all parties being given a reasonable opportunity to comment upon it
and subject to such other conditions as the tribunals may determine.

These provisions give LMAA arbitrators extremely wide discretionary powers to make orders for
concurrent hearings and directions requiring parties to one arbitration to disclose evidence to
parties in another. They represent a potential inroad on the principle of confidentiality in
arbitration as a wide range of third parties could be admitted to the hearing. However, in practice
only third parties closely linked to the transaction are admitted and the concurrent hearings will
remain confidential to the parties concerned.
These powers will only apply where both arbitrations are governed by LMAA Terms. They do not
require common tribunals, although they are unlikely to be exercised unless there is at least one
common arbitrator in each tribunal. Otherwise there will be fewer savings of costs and a greater
risk of inconsistent findings between tribunals. Saving time and costs, together with acting fairly
as between the parties, are the principal factors to be taken into account when deciding to make
orders for concurrent hearings. In the vast majority of cases, concurrent hearings will be quicker
and cost less than two separate sets of proceedings. In such circumstances, an order for concurrent
hearings is likely to be made unless one of the parties can establish real and irreparable prejudice.
The precise scope of the arbitrators powers under paragraph 14(b) is unclear although it appears
to be very wide. In practice, the exchange of submissions and disclosure as between parties to all
the affected arbitrations is usually ordered, and the parties are then frequently able to agree on
how other matters should be dealt with. It is likely that, in appropriate cases (which are relatively
rare) tribunals can agree on concurrent hearings on certain common issues, leaving other issues to
be decided separately: this certainly happens in practice. If there is an order for concurrent
hearings then any directions affecting both arbitrations (for example, orders within (i) and (ii) of
paragraph 14(b)) will normally be agreed by both tribunals. Each tribunal must remain free to
make its own orders for matters directly affecting only its own arbitration (for example, costs in
that arbitration) and any such orders would probably prevail in the unusual case of inconsistency
with joint orders made by both tribunals. However, where there are concurrent hearings it would
be contrary to paragraph 14(b) for one tribunal to make orders which are plainly contrary to orders
made jointly which affect both arbitrations (e.g., inconsistent time limits for disclosure).

Express agreements to consolidate proceedings


In sale contracts (typically commodities contracts) it is common for the parties to agree expressly
to the consolidation of a chain of claims by providing, for example:
If a contract forms part of a string of contracts which contain materially identical terms (albeit
that the price may vary under each contract), a single arbitration determining a dispute as to
quality and/ or condition may be held between the first seller and the last buyer in the string as
though they were parties who had contracted with each other.

Any award made in such proceedings shall, subject only to any right of appeal pursuant to Rule
10, be binding on all the parties in the string and may be enforced by an intermediate party against
his immediate contracting party as though a separate award had been made pursuant to each
contract.12
The question of whether third parties are covered by such provisions is one of construction, but
the courts will usually give effect to such clauses even if the contracts in a chain are not on
identical terms.13

3. PRACTICE IN MULTI-PARTY DISPUTES

Appointment
To avoid duplication of costs and the risk of inconsistent findings in multi-party disputes priority
should be given to ensuring a common tribunal is appointed as soon as possible. This is most
easily achieved by co-operation among the parties when appointing common arbitrators, but it can
be achieved even if one of the parties refuses to co-operate.
In The Smaro 14 a ship sale agreement was entered into by Sellers with Buyers or a company to
be nominated. Buyers eventually nominated X to take delivery. A dispute arose and arbitrators
were appointed by Sellers and Buyers. X then also appointed the arbitrator already appointed by
Buyers. Sellers disputed whether X had validly commenced arbitration and an issue arose as to
whether X could join the existing arbitration between the Buyers and Sellers. Rix J decided that X
had properly joined the arbitration by obtaining the arbitrators consent to act as their arbitrator
and by giving notice to Sellers and the other arbitrators. He considered that where a claim under a
contract has been submitted to arbitration under that contracts arbitration clause, another claim
based on identical facts brought by another party to the contract could be referred to the same
arbitration, even if one of the parties to the arbitration did not consent to this. The position would,
however, be different if the claimants could not agree on a single arbitrator or a single arbitration.
Arbitrators will generally be willing to co-operate in achieving common membership of tribunals
in related disputes, by accepting appointments in related disputes or making the appointment of a
third arbitrator or umpire. If the courts default powers are invoked in relation to an appointment
they will also assist in ensuring common tribunals are appointed.15 If there are more than two
parties to an arbitration (e.g., in some cases where the Contracts (Rights of Third Parties) Act
1999 applies) but no agreed mechanism for the appointment of a tribunal, the courts default
powers under section 18 of the 1996 Act may be invoked (see Chapter 10).

The conduct of the arbitration


The main priority in the conduct of a multi-party dispute should be to secure all the parties cooperation in working towards a streamlined procedure. It is usually helpful to ensure that each of
the related claims is commenced closely in time so they can run in parallel. It is not uncommon for
a respondent who is to be claimant in a second arbitration to appoint, in that arbitration, the
arbitrator appointed by the claimant in the first, and then to appoint in the first arbitration the
arbitrator that is appointed against him in the second, thus ensuring identical tribunals. Where

there is a string of related contracts time extensions for the appointment of arbitrators may be
agreed to enable this to happen throughout the string.
In a single arbitration involving more than two parties (e.g., where arbitrations have been
consolidated by consent, although this happens very rarely in maritime disputes) then the tribunal
may clearly impose suitable and efficient procedures upon all the parties under section 33 of the
1996 Act.
Problems are more likely to arise where there are related, but separate, disputes. As a general rule,
an arbitrator acting in one arbitration cannot make an order against a party to another unless all
parties concerned have agreed (e.g., by incorporating the LMAA Terms or by each party
appointing arbitrators on the basis of those Terms, as discussed above) to confer power to make
directions binding third parties. In those rare cases where there is an absence of such express
agreement arbitrators can still take some steps to streamline procedure in multi-party disputes
for example, appointment of an umpire or third arbitrator may ensure wholly or substantially
common tribunals deal with common disputes. They may also express their preference for
concurrent hearings and co-operation between parties to related disputes. Their duty under section
33 of the 1996 Act to adopt procedures suitable to the circumstances of the particular case,
avoiding unnecessary delay or expense may justify taking steps to reduce duplicated expense or
inconsistent findings in related disputes, for example, by deferring a decision on a certain issue
until it has been resolved in related hearings. Such steps may also be consistent with the parties
duty under section 40 to do all things necessary for the proper and expeditious conduct of the
arbitral proceedings.
In general, an arbitrator should not penalise a party for exercising his contractual right to conduct
the arbitration solely with the other party to the contract. If the arbitrator considers that one of the
parties insistence on its contractual right to exclude third parties from the arbitration is
inconsistent with his duty to adopt efficient procedures, he can resign.16 An arbitrator who
imposes sanctions on a party for refusing to co-operate in concurrent hearings or uses evidence
disclosed in related arbitrations may risk applications for removal or challenges to awards on the
grounds of serious irregularity. The complaint would be that he has failed to conduct the
proceedings properly or in accordance with the procedure agreed by the parties.17 It may be said
that by allowing a third party (such as an arbitrator or a party involved in another arbitration) to
have access to documents (or the hearing) the arbitrator has acted outside his agreed
powers.18 However, the success of any such application would depend upon establishing
substantial injustice. This may be difficult to establish unless the private nature of arbitration has
been wholly disregarded so that what has happened is so far removed from what could
reasonably be expected of the arbitral process that the court should intervene.19
In The Capricorn I,20 two arbitrations arising out of the same facts but different charters
proceeded in parallel. The two-man tribunals had one arbitrator in common. Each tribunal
produced an award but both awards were supported by the same set of reasons drafted by the
common arbitrator. One of the parties unsuccessfully challenged the award on grounds that the
reasons given for it would have been based on evidence or submissions in the other arbitration to
which they had not been given access. The court accepted that the course adopted by the
arbitrators was procedurally defective because there had been no agreement to concurrent

arbitrations. However, the application failed because no injustice had been established. The
arbitrators would not have reached a more favourable result even if the applicants had been given
an opportunity to respond to the evidence served in the other arbitration.

Submissions and evidence


In a chain of claims the party in the middle will usually try to minimise its costs by passing the
allegations made against it up and down the line. However, it may sometimes have to take the
initiative in serving submissions. This may entail serving inconsistent submissionse.g., a
charterer may deny unseaworthiness against the sub-charterer, but plead unseaworthiness against
the shipowner. This is permissible because the two arbitrations are technically quite separate and
the middle party must wear a different hat in each of them. Sometimes a middle party may
decide, as a matter of tactics, to join sides with one party, for instance because of a hire
differential in the two charters, or because the party at one end of the chain is insolvent.
As regards documents, the general rule is that an arbitrator can only order parties to an arbitration
to make disclosure of documents. He has no authority to bind third parties. This means that in the
absence of agreement to the contrary (e.g., under the LMAA Terms discussed above) a party to
one arbitration (the first arbitration) in a chain of claims cannot obtain documents disclosed in
another arbitration unless they are in the control of the other party to the first arbitration. Even
then, such documents will not usually be disclosable in the first arbitration, because if they have
been disclosed in another arbitration such documents are only to be used for the purpose of that
arbitration and the person to whom disclosure is made is under an implied obligation of
confidentiality.21
An order for production of documents (formerly known as a subpoena duces tecum) from a third
party can, however, be obtained by applying to the court under section 44 of the 1996 Act. Such
orders are only available against a third party within the jurisdiction and the application should be
carefully worded to require the production of relevant documents only.22 Further, section 43 of the
1996 Act does not give a court power to order general disclosure against a third party and a third
party could rely on the confidentiality of the documents to resist producing them. Confidentiality
of evidence and awards is discussed in Chapter 13.

4. COSTS AND THIRD PARTIES


Sections 61 and 63 of the 1996 Act recognise the tribunals power (in the absence of any
agreement otherwise23) to make an award allocating the costs of the arbitration as between the
parties and to determine by award the recoverable costs of the arbitration on such basis as it
thinks fit. It is implicit from the wording of both these provisions and the consensual nature of
arbitrators powers that, in the absence of any agreement otherwise, the tribunal only has the
power to make an award of costs for the costs incurred in the arbitration in question and he may
only make such an award as between the parties to the arbitration in question. This follows from
the previous law under which the tribunal only had power to award the costs of the reference,
meaning the costs of the reference of the particular arbitration in question.24 There appears to have
been no intention in the 1996 Act to give arbitrators wider statutory powers to make costs orders
against third parties or for costs incurred in another arbitration.

Costs in multi-party disputes


Recovery of costs incurred in related arbitrations may cause problems. The most common
situation occurs where there is a dispute in a chain of contracts on similar terms. For example,
sub-charterers sue charterers for damage to goods and charterers sue disponent owners on back-toback terms. The general rule is that an arbitrator cannot make an order against one party requiring
it to indemnify the other party for costs incurred in another arbitration further up the line.
In The Takamine,25 owners commenced arbitration against charterers claiming for damage to the
vessel and unpaid hire. Charterers in turn commenced arbitration against sub-charterers for an
indemnity. By consent the arbitrations were held concurrently. The arbitrator held that the subcharterers were entitled to their costs and that the owners should bear one-third of those costs
while the charterers should bear the remaining two-thirds. Robert Goff J held that although the
two arbitrations were held together it was not open to the arbitrator to make an order that the
owners in one arbitration should have to pay the costs of the sub-charterers who were party to
another arbitration. He commented that the arbitrator could legitimately have reached the desired
result by ordering the owners to indemnify charterers against one-third of the cost which they had
been ordered to pay the sub-charterers. However, in The Antaios,26 he said that this was based on a
concession made by the parties.
The Antaios 27 involved four concurrent arbitrations arising out of back-to-back charterparties.
Robert Goff J upheld the arbitrators decision that the losing party in each of the four arbitrations
should pay the costs of the successful party in that arbitration. This meant that a party who had
been successful in one arbitration but unsuccessful in another could not pass on liability for costs
he had to pay to the successful party in the arbitration in which he had been unsuccessful.
Costs incurred in one dispute may, however, be recovered in another arbitration if they can be
claimed as damages for breach of contract.28 However, this is a limited remedy. First, such costs
can only be recovered as if they were within the parties reasonable contemplation as a loss likely
to result from breach. Second, such damages will only be recoverable if a claimant establishes a
breach of contract or duty; a party who has successfully defended a claim cannot recover costs as
damages. Furthermore, where the substantive claim is not one for damages (e.g., where the claim
is for a debt only), no costs in the guise of damages can be awarded.29
The law in this area may lead to perceived injustice where an unsuccessful claimant has initiated a
chain of arbitrations. The head claimant will only have to pay the costs incurred by the next party
down the line and these may not properly represent the cost of defending the claim as that party
may have simply passed submissions up and down the line. That party will, however, be liable for
the costs of the successful respondent in the claim he pursues down the line but will not, by reason
of the ruling in The Antaios,30 be able to pass that liability back to the head claimant. The party in
the middle would be less vulnerable to irrecoverable costs if the other parties agreed that he could
drop out of the arbitration, or that the arbitrations be consolidated. However, it is doubtful whether
such consent would be forthcoming unless there are other advantages in such an arrangement.
Alternatively, the party in the middle could reasonably argue that in quantifying the true cost of
defending the head claim, account should be given for the costs incurred in the arbitration below,
for example defending the head claim may have required reliance on the expert report adduced by

the respondent in the arbitration below.31 However, arbitrators are more likely to apply The
Antaios strictly, taking the view that parties who charter ships in and out take the commercial risk
of becoming liable for costs that they cannot pass on.

LMAA Terms and recovery of costs against third parties


Paragraph 14(b) of the LMAA Terms (set out above) enables tribunals in related arbitrations to
make orders for concurrent hearings where both arbitrations are governed by LMAA Terms. It is
doubtful whether these provisions could be construed as enabling LMAA arbitrators to order that
parties to one arbitration pay the costs of the parties to another arbitration where orders for
concurrent hearings are made. These provisions are primarily concerned with enabling the
tribunals to make directions for the expeditious conduct of concurrent hearings, for instance in
relation to disclosure of evidence. They do not attempt to enable arbitrators to consolidate
arbitrations, or to make awards binding a party in one arbitration to pay damages (or costs) to a
party in another. If this had been the intention then it would have been made clear. The authorities
suggest there is no ground for implying that an arbitrator has jurisdiction to grant a costs order
against a party to a separate arbitration. In The Antaios,32 Robert Goff J considered that such
orders would not be permissible (in the absence of an express agreement between all parties)
where the arbitrations had been heard concurrently, but had not been consolidated.

Security for costs


Under section 38(3) of the 1996 Act the tribunal has jurisdiction to order a claimant to provide
security for the costs of the arbitration. As with sections 61 and 63 (discussed above), it is
implicit that this confers the power to order a party to the arbitration in question to provide
security for costs. It also seems clear (for the reasons discussed above) that paragraph 14(b) of the
LMAA Terms would not enable an LMAA arbitrator to make an order requiring the party to one
arbitration to provide security for the costs of another. By contrast, in court proceedings (e.g., to
challenge an award), the court may make orders against third parties, typically where the third
party has assigned the right to the claim to the claimant, or has contributed to the claimants
costs.33

Costs orders against third parties maintaining an


arbitration
Genuine injustice may arise in cases where a third party, such as a bank, insurance company or
P&I Club, maintains a claim asserted by an insolvent company. The maintainer will be able to
take the benefit of a successful claim but escape the burden of a costs order if the claim fails. In
court proceedings the courts have statutory powers under section 51 of the Supreme Court Act
1981 to make costs orders in court proceedings against third parties where such an order would be
just.34 Arbitrators do not have such powers and security for costs is the only clear safeguard
available to protect a successful respondent from having to bear its own costs.35
Section 51 enables the court to make orders against third parties for costs incurred in court
proceedings relating to an arbitration (e.g., an appeal against an award).

In The Vimeira,36 owners claimed against charterers for damage to the vessel. The charterers
claimed against sub-charterers and two sets of arbitrators made awards. Owners in the head
charter arbitration and charterers in the sub-charter arbitration applied for remission of the awards.
Hirst J dismissed the applications and ordered the owners to pay the charterers costs of the
remission application, such costs to include any costs paid by charterers to the sub-charterers in
the application relating to the sub-charter. The House of Lords upheld this costs order on the basis
of the High Courts wide jurisdiction under section 51 of the Supreme Court Act 1981.
It is unlikely, however, that a court would have the power under section 51 (or otherwise) to make
an order against a third party (such as an insurer) to pay costs incurred in arbitral proceedings. The
court only has power under section 51 to make orders as to the costs of proceedings in court.
Furthermore, under section 61 of the 1996 Act, the power to make awards allocating the costs of
the arbitration lies with the tribunal not the court. The courts only clear powers of intervention
regarding the costs of an arbitration are under section 63(4) which allows it to determine the
recoverable costs of the arbitration (similar powers relate to the arbitrators fees and expenses
under section 64(2)). This provision is limited to conferring power to assess the amount of costs
recoverable. It is doubtful whether its wording would enable the court to decide which party
should be liable for those costs; this decision lies with the tribunal under section 61. It is also
unlikely that this provision would be construed broadly so as to enable the court to make powers
ordering third parties to pay the costs of the arbitration. Such powers were not recognised under
the previous law and would depart from the policy of the 1996 Act in minimising court
intervention in arbitration.37

Costs orders against lawyers


The courts have statutory powers to make personal costs orders against legal representatives of
parties for costs incurred in litigation as a result of improper, unreasonable or negligent acts or
omissions. Arbitrators do not share these powers as they are conferred in relation to civil
proceedings by section 51(6) of the Supreme Court Act 1981.38 This provision gives effect to the
courts longstanding inherent powers to make wasted costs orders against solicitors based upon a
solicitors duties as an officer of the court.39 It is difficult to see how an arbitrator could make an
order for costs against a solicitor (or a P&I Club or barrister) unless that solicitor had given
personal undertakings as to costs or had put up security or otherwise participated personally in the
arbitration (as opposed to representing his client). This point is considered in further detail in
Chapter 20 in relation to the question of whether an arbitrator might recover fees from a solicitor
who appointed him.

5. AGENTS AND ARBITRATION


In charterparty or bill of lading contracts it is extremely common for the contract to be signed or
concluded by an agent. Usually it is quite clear who the principal parties are, but it is important to
take every precaution to ensure that any claim is asserted against the proper party. Any dispute as
to the identity of the proper party to sue (or be sued) can normally be categorised as a
jurisdictional issue (see Chapter 6) in that one party (normally the respondent) denies that it was
party to the arbitration agreement or that the claim made is within the scope of the arbitration

agreement. The nature and effect of relationships of agency depend on substantive law beyond the
scope of this book.40

6. ASSIGNMENT
Assignment of contractual rights is a matter of the law of contract.41 In English law where a party
to a contract (the assignor) assigns his rights under a contract to a third party (the assignee)
the assignors rights under the contract are transferred to the assignee. Assignment is common in
the maritime context, for example a shipowner may assign his rights to freight and demurrage
under a charter, or a seller of goods may assign the benefit of a marine insurance policy for those
goods. If the contract contains an arbitration clause then this will apply to regulate the way in
which the assignee can enforce the assigned right.42 If the claims made by the assignee are ones
which the original party would have been obliged to refer to arbitration then the assignee is bound
by the arbitration clause, and also has the right to enforce it. The assignee is bound by the
arbitration clause in the sense that he cannot assert the assigned right without also accepting the
obligation to arbitrate.43 This means that the assignee may be subject to a stay of proceedings
under section 9 of the 1996 Act44 and may also be restrained by injunction from pursuing foreign
proceedings in breach of the arbitration clause.45
In The Jay Bola,46 a voyage charter contained a London arbitration clause. Bills of lading were
issued in Brazil evidencing shipment of steel bars. The cargo was damaged in a fire. Charterers
insurers paid the charterers and, through subrogation, became assignees of the charterers rights in
respect of the damaged cargo against disponent owners. The insurers commenced proceedings
against the disponent owners in Brazil. The Court of Appeal held that the rights being asserted by
the insurers in the Brazilian proceedings were subject to the arbitration clause in the voyage
charter. The insurers were not entitled to assert those rights inconsistently with the arbitration
agreement and disponent owners were entitled to an injunction restraining the insurers from
pursuing the Brazilian proceedings. The Jay Bola has been cited with approval in more recent
cases47
Problems may arise in practice as to whether the assignor or assignee has title to sue, and whether
the assignee is properly to be regarded as a party to the arbitration. It is usually safer to commence
arbitration in the name of both the assignee and assignor, particularly if any question of time bar
may arise.48 If the respondent is given full notice of the assignment then this should minimise
jurisdictional problems since if he fails to raise jurisdictional objections before the tribunal or the
court when he becomes aware of the grounds for such objections he will lose the right to
object.49 If the assignment takes place after an arbitration has commenced the assignee may still
rely on the appointment of the arbitrator by the assignor and could intervene in the pending
arbitration to enforce the assigned rights.
In The Jordan Nicolov,50 charterers claimed against owners for alleged short delivery and
appointed an arbitrator in accordance with the arbitration clause in the charterparty. Shortly
afterwards the charterers insurers (who had already paid the claim) gave owners notice that they
were the charterers assignees. The arbitrators were not satisfied that the charterers still had title to
sue and found that if any award was to be made in favour of the insurers a fresh arbitration would
have to be started (by then the claim was time-barred). Hobhouse J disagreed and found that the
insurers, as assignees, could succeed to the rights of the assignor in a pending arbitration. He made

clear that notice of the assignment must be given to the arbitrators as well as to the other party
because the appointment of an arbitrator gives rise to a tripartite relationship.
It is important to note that the assignee of a claim will not become a party to a pending arbitration
simply by virtue of the assignment. He must perfect the assignment by giving notice to the other
side and must intervene in the arbitration by giving notice to the arbitrator. Accordingly, it is
important that express notice of the assignment is given promptly to the other party and the
arbitrator.
In Baytur SA v Finagro Holding SA,51 a dispute arising out of a sale contract was referred to
GAFTA arbitration. The buyers subsequently transferred their assets to the defendant company
and simultaneously dissolved, thereby ceasing to exist. The defendant continued the arbitration in
the name of the buyers and failed to give notice to the sellers. An arbitration award was then made
and the Court of Appeal held that it was a nullity since the defendant assignees had failed to give
notice to the sellers or to submit to the jurisdiction of the arbitrators. The arbitration had lapsed
because there could not be a valid award when one of the two parties had ceased to exist.
However, the courts will not readily find that an arbitration is a nullity since this would enable a
party to terminate difficult litigation by simply merging or dissolving and Baytur v Finagro was
distinguished by Longmore J in Eurosteel Ltdv Stinnes AG.52
Similarly, Baytur v Finagro was distinguished in The Republic of Kazakstan v Istil Group
Inc. 53 In this case, a British Virgin Island company, Metalsrussia, commenced arbitration
proceedings in London. The tribunal issued a partial award affirming its jurisdiction, whilst
unaware that Metalsrussia had merged with a parent company and had ceased to exist. David Steel
J considered that Metalsrussias merger with its parent company did not render the partial award a
nullity. BVI law provided for universal succession in respect of all proceedings, including
arbitration proceedings. So, under BVI law, no notice of merger was required to establish a right
to claim in proceedings. The award was also valid under English law, since once notice of the
merger was given, the arbitral tribunal could continue and re-instate orders and awards previously
made by the tribunal.
Where the assignee takes over as a party to the arbitration the assignor remains liable for costs
incurred prior to the involvement of the assignee. The assignee will be liable for costs arising after
the assignment because his intervention is regarded as a submission to the arbitrators jurisdiction
to award costs.54 Indeed, it is likely that since the assignee is agreeing to be treated as party to the
arbitration he will be subject to the tribunals jurisdiction to award costs for the entire arbitration.
Otherwise, there would be scope for injustice if an insolvent assignor could assign away the
benefit of a claim in arbitration while remaining solely liable for the burden of the respondents
counterclaim or previous costs incurred in the arbitration.55 In Baytur SA v Finagro Holding
SA,56 Lloyd LJ suggested that for an assignment to be effective in a pending arbitration the
consent of the other party and the arbitrator might be necessary to prevent this sort of injustice.

7. INSURERS
The legal position of insurers in relation to arbitral proceedings to which the insured is a party is
beyond the scope of this book. However, the means by which third parties can obtain rights to
arbitrate against insurers pursuant to an insurance contract deserve brief comment. Most P&I Club

rules contain arbitration clauses for referring disputes between a member and the Club to
arbitration. If the member of the P&I Club (or any other insured) is made bankrupt, subject to a
winding up order or put into receivership, then under section 1(1) of the Third Parties (Rights
Against Insurers) Act 1930, the members rights against the Club for any insured liability will be
transferred to and vested in the third party to whom the liability was so incurred. However, the
third party will be bound by any arbitration clause in the P&I Club rules.57
In The Felicie,58 Phillips J held that where the member of a P&I Club had commenced an
arbitration against its Club, a third party subsequently invoking rights under section 1(1) of the
1930 Act was not entitled to be automatically substituted in that arbitration; it was obliged to
commence a fresh arbitration. He held that an automatic substitution of a third party in an
arbitration would be unsound in law and impossible in practice for the following reasons:

(a) The 1930 Act cannot have the effect of making a third party automatically a party to a
dispute which is not of his making.
(b) Some of the rights that arise out of a reference to arbitration are personal to the parties and
cannot properly be the subject of a transfer to a third party under the 1930 Act, e.g. costs
incurred prior to the transfer.
(c) It would be a startling concept if a third party became a party to an arbitration without
notice or any procedural mechanism of substitution.
(d) Unacceptable practical complications would arise if the arbitration also raised claims not
transferred to the third party.

It remains to be seen whether this approach will be maintained in the light of The Jordan
Nicolov.59 Hobhouse J considered that a third party could be substituted without undue practical
complications if notice was given to the other party and the arbitrator. More recent cases such
as The Republic of Kazakstan v Istil Group Inc,60 although not dealing directly with the point,
would appear to follow the approach adopted in The Jordan Nicolov.

8. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999

Introduction
The general rule in English law is that contracts, including arbitration agreements, can only be
enforced by or against parties to them. This follows from the doctrine of privity of contract.
However, section 1 of the Contracts (Rights of Third Parties) Act 1999 (the 1999 Act) enacts an
exception to the doctrine of privity by enabling a third party to enforce, in his own right, terms in a
contract either where there is an express provision allowing such enforcement or where, subject to
a contrary intention, the term purports to confer a benefit on him. In the maritime context the 1999
Act has had a significant impact. It makes it easier for brokers to sue for commission under
charterparties or ship sale contracts. Independent contractors such as stevedores are now more
likely to be able to rely on exclusion or limitation clauses inserted into bills of lading or
charterparties for their benefit (sometimes called Himalaya clauses). However, parties may
expressly agree to contract out of the 1999 Act. In such cases it will be necessary to refer to
various techniques developed prior to the 1999 Act for giving effect to third party rights, for
instance treating the independent contractor as having entered into a contract on those terms.61

It is important to note, however, that the 1999 Act confers no rights on a third party in the case of
a contract for the carriage of goods by sea, defined to cover bills of lading, sea waybills (or
corresponding electronic transactions) and ships delivery orders, but not charterparties.62 These
contracts are excluded to avoid disruption of the carefully regulated scheme of transfer of rights
(and liabilities) under the Carriage of Goods by Sea Act 1992. The exception does not, however,
preclude a third party availing himself of an exclusion or limitation clause in a bill of lading.63
The question of how far third parties should be bound by arbitration clauses was one of the most
difficult issues that faced the Law Commission in proposing reform of privity of contract.64 The
conflict arises out of enabling a third party to enforce a benefit conferred by a contract in
accordance with its terms (including an arbitration clause) yet also respecting the principle that a
person should not be bound by an arbitration agreement unless he has agreed to arbitrate. An
arbitration agreement ordinarily has the effect of excluding the parties access to court to resolve
disputes covered by the agreement. If a third party were bound by an arbitration agreement
without consent it might be said to deprive him of his fundamental right to a fair and public trial to
determine his respective rights and obligations.65 The Law Commissions initial view was that a
third party should generally only be bound by an arbitration agreement if he had agreed to be so
bound.66 Ultimately, however, the approach adopted means that if parties to a contract agree that
enforcement of a benefit conferred on a third party is to be subject to arbitration then the third
party will be bound by the arbitration clause in the sense that he cannot enforce that term without
also accepting the obligation to arbitrate. The Law Commission called this the conditional benefit
approach and it is similar to the law on assignment of contracts containing arbitration
clauses.67 The main provision relating to arbitration provides as follows:

8. (1) Where
68
o (a) a right under section 1 to enforce a term (the substantive term) is subject to a term
providing for the submission of disputes to arbitration (the arbitration agreement); and
o (b) the arbitration is an agreement in writing for the purposes of Part I of the Arbitration
Act 1996,

the third party shall be treated for the purposes of that Act as a party to the arbitration
agreement as regards disputes between himself and the promisor relating to the enforcement
of the substantive term by the third party.

Application of the Contracts (Rights of Third Parties) Act


1999
Parties to a contract may expressly exclude the application of the 1999 Act but this is not common
in shipping contracts. The usual situation where a third partys entitlement (or duty) to arbitrate
under the 1999 Act will be in issue is if he attempts to enforce a term (the substantive term) in a
contract to which he is not a party and that contract contains an arbitration clause (e.g., a broker
enforcing a term in a charter recording his entitlement to commission). For section 8(1) to apply it
must be shown that the substantive term is within section 1 and that the third partys right to
enforce that term is subject to the arbitration agreement. Under the 1999 Act a third party

attempting to enforce the substantive term is treated analogously to a statutory assignee of the
benefit of the substantive term (i.e., it is treated as if standing in the shoes of the original
promisor). On that basis, the third partys right to enforce the term is treated as subject to the
arbitration agreement so long as that agreement is wide enough to cover a dispute between the
original parties to the contract regarding enforcement of the substantive term. The scope and effect
of these provisions of the 1999 Act was tested in Nisshin Shipping Co Ltd v Cleaves & Company
Ltd.69
In Nisshin Shipping Co Ltd v Cleaves & Company Ltd,70 a series of charterparties, which
contained arbitration clauses, provided for commission to be payable to shipbrokers. The
shipbrokers were not, however, party to the said charterparties. The shipbrokers wanted to pursue
claims for the commission in arbitration. They referred the claims to arbitration, despite not being
party to the arbitration agreements. It was common ground that the wording of the arbitration
clause was wide enough to cover a claim being brought by charterers against owners for failing to
pay the brokers. In the arbitration, the arbitrators took jurisdiction on the basis of sections 1 and 8
of the Contract (Rights of Third Parties) Act 1999. The shipowners contested jurisdiction under
section 67 of the Arbitration Act 1996, arguing that the charterparties did not purport to confer a
benefit on the brokers within the meaning of section 1(1)(b) of the Contracts (Rights of Third
Parties) Act 1999 and secondly, the brokers rights (if any) could not be enforced via the
arbitration agreements.
Colman J found that the charterparties did contain a provision conferring the benefit of
commission on the brokers. He further considered that the charterparty terms were neutral in the
sense that they did not indicate any intention that the shipbrokers should not be entitled to enforce
the commission terms. Therefore, the brokers were entitled to enforce the commission clauses
under section 1 of the 1999 Act. Further, the brokers were entitled, and in fact obliged, to bring
their claim in arbitration.
It should be noted that Colman J departed from the view adopted in the previous edition of this
book71 to the effect that the application of section 8(1) depended on whether the wording of the
arbitration clause was apt to cover third parties. He considered that under section 1 of the 1999
Act, a third party was effectively treated as a statutory assignee of the promisees right of action
against the promisor. The parties intentions as to whether a third party should arbitrate were
relevant only to the limited extent that it was necessary that the arbitration agreement was wide
enough to cover a dispute between the original parties as to performance of the substantive term.
He concluded at paragraph 43 of the judgment that:
For the reasons which I have given, whether they [the parties] did or did not express a mutual
intention that the third party should be entitled to avail himself of the arbitration agreement for the
purpose of enforcing his rights under the substantive term in relation to which the 1999 Act has
transferred to him a right of action is not relevant.
Colman J also specifically held that the statutory requirement for the third party to arbitrate did
not infringe the third-partys rights under Article 6(1) of the European Convention on Human
Rights. On the contrary, sections 1 and 8 of the 1999 provided a third party with a remedy which
would otherwise have been denied to him.

Jurisdictional issues
Issues may arise as to the scope of the third partys right (or obligation) to arbitrate as even if his
rights are subject to an arbitration agreement, he is only treated as party to the arbitration
agreement under section 8(1) as regards disputes between himself and the promisor relating to
the enforcement of the substantive term by the third party. Section 8(1) primarily contemplates
proceedings in which the third party is claimant and is taking positive steps to enforce his rights in
proceedings in court or arbitration. For instance, if the third party seeks to enforce a substantive
term in court proceedings this will usually be apparent from his particulars of claim and the
promisor can seek a stay of those proceedings under section 9 of the 1996 Act. Similarly, if the
third party commences arbitration, it should be reasonably clear from his submissions whether or
not he is entitled to arbitrate on the ground that he is enforcing a substantive term subject to an
arbitration agreement. Jurisdictional issues are more likely to arise where the third party has not
commenced proceedings in court and has not voluntarily submitted to arbitration. The issue will
be whether the dispute relates to enforcement of the substantive term by him within the meaning
of section 8(1). Enforcement probably requires some positive step of reliance on the term by the
third party, but would not require the third party to commence arbitral or court proceedings.72
For example, under a charter the parties might agree that owners will indemnify stevedores against
claims by receivers for damage to cargo on loading, and that all disputes arising out of the charter
be referred to arbitration. Receivers make a claim against the stevedores for damage to cargo on
loading and the owners then commence arbitration against the stevedores seeking a declaration of
non-liability. The stevedores could probably contest the tribunals jurisdiction on grounds that
they should not be treated as party to the arbitration agreement because the dispute did not relate
to enforcement of an indemnity by them. However, if the stevedores made a claim for an
indemnity it would be referable to arbitration.

Appointment of the tribunal


Most arbitration clauses are designed for disputes between two parties (e.g., each of the parties is
to appoint an arbitrator and the two arbitrators are to choose a chairman). However, such wording
can be read consistently with section 8(1) of the 1999 Act by treating the third party as a party to
the arbitration agreement and the ordinary default powers for such appointments should be
available.73 If a third-party right is treated as subject to an arbitration clause which makes no
provision for the number of arbitrators, then the default provisions of the 1996 Act should
similarly allow for the appointment of a sole arbitrator.74 If, however, a clause is only designed to
accommodate disputes between the original contracting parties (e.g., one arbitrator to be
appointed by the Owner, one by the Charterer, and one by the two so chosen) then if a dispute
arises, the court will have to consider whether the third partys rights are subject to the clause
within the meaning of section 8(1) of the 1999 Act, and if so, it would probably give effect to the
appointment provision by treating the third party as the other party to the arbitration agreement.75

Can disputes between all the parties be joined?


Difficult issues may arise regarding the relationship between a dispute between the parties to the
contract, and a dispute between one or both of those parties and a third party. Such disputes will

usually raise related issues. Ideally, the disputes should be decided at the same time before the
same tribunal to minimise costs and to avoid the risk of inconsistent findings. However, the 1999
Act does not affect the general rule that arbitral proceedings cannot be consolidated or heard
concurrently in the absence of consent from all parties to the proceedings.76 If the LMAA Terms
apply and arbitrations raise common issues of fact or law the tribunal may make orders for them to
be heard concurrently (see above at section 2).
Section 8(1) of the 1999 Act provides that the third party will be treated as party to the arbitration
agreement in the contract as regards disputes between himself and the promisor relating to the
enforcement of the substantive term by the third party. This may give rise to a tripartite
arbitration agreement if the disputes between the third party and the promisor relating to the
enforcement of the substantive term overlap with the disputes agreed to be referred to arbitration
between the original parties. If the third party and the original parties to the contract are involved
in the dispute from the outset and all the disputes relate to enforcement of the substantive term by
the third party, then it should be possible for a single tribunal to be appointed for all disputes even
if one party is uncooperative. This would be done by ensuring the appointment of the same
tribunal for all relevant disputes arising between the three parties. Typically, this will be achieved
by co-operation between the arbitrators and at least two of the parties, or by using the courts
default powers.77 More difficulty will arise if arbitrators have already been appointed for one
dispute and the arbitration has progressed before disputes are raised concerning the other party
(i.e., the third party or original party not already involved in the arbitration). Unless all the parties
co-operate, the existing arbitration is likely to be treated as separate from any possible arbitration
involving the other party.78 The tribunal already appointed would not be obliged, and indeed
might not be invited, to accept appointment in relation to the dispute concerning the other party.
In addition, the other party would not be obliged to accept the tribunal already appointed, and
could probably insist on the appointment of at least one arbitrator of his choice.79 Arguments
could also be raised against the third party being joined because the existing arbitration may raise
other disputes than those relating to the enforcement of the substantive term by the third party.
In relation to such other disputes he would not be treated as party to the arbitration agreement and
the existing parties could exclude him from the arbitration on that ground.

Enforcement of terms enabling a third party to arbitrate


The 1999 Act will most commonly be invoked where the parties to the contract intend to confer
substantive benefits on a third party such as the right to claim a payment. Section 8(2) of the Act
provides for the situation (probably rare in practice) where the only term which the third party is
seeking to invoke is an arbitration clause intended to cover disputes arising between him and one
or both of the parties to the contract. In such circumstances the third party has the option of
whether or not to arbitrate, but if he does exercise the right to rely on the arbitration agreement,
then he will be treated as if he were a party to the arbitration agreement from that point. Section
8(2) provides as follows:

(2) Where

o
o

(a) a third party has a right under section 1 to enforce a term providing for one or more
descriptions of dispute between the third party and the promisor to be submitted to
arbitration (the arbitration agreement);
(b) the arbitration agreement is an agreement in writing for the purposes of Part I of the
Arbitration Act 1996; and
(c) the third party does not fall to be treated under subsection (1) as a party to the
arbitration agreement,

the third party shall, if he exercises the right be treated for the purposes of that Act as a party
to the arbitration agreement in relation to the matter with respect to which the right is
exercised and be treated as having been so immediately before the exercise of the right.
This provision is intended to cover situations where the contracting parties give the third party a
right to arbitrate a dispute other than one concerning a right conferred on the third party under
section 1, for example the contracting parties give the third party a right to arbitrate a tort claim
made by the promisor against the third party. To require the third party to arbitrate where there is
no other benefit to him was considered to impose a pure burden on him, contrary to the
philosophy of the 1999 Act.80 Accordingly, the third party is only subject to such an arbitration
clause if he has chosen to exercise the right to arbitrate. It has also been explicitly held that the
fact that a third party was required to arbitrate a claim to enforce a promise which, had the
promisee wished to pursue it, he would have had to refer to arbitration, pursuant to sections 1 and
8 of the 1999 Act, did not infringe the third partys rights under Article 6(1) of the European
Convention on Human Rights (incorporated into English law pursuant to the Human Rights Act
1998).81

9. EFFECTS OF ARBITRATION AWARDS ON THIRD PARTIES


An arbitration award is generally only binding on the parties to the arbitration agreement
itself.82 One application of this principle is that a finding in an award only creates an issue
estoppel as between the parties to an award For example, an arbitration award on a particular issue
arising between X and Y will not be binding if the same issue arises between Y and Z.83
In Sun Life Assurance Company v Lincoln National Life Insurance Co,84 Sun Life appealed to the
Court of Appeal against a judgment that an arbitral decision on a particular point was binding on
arbitrators in a subsequent arbitration between different parties. The Court of Appeal found that an
issue estoppel would only be effective between the same parties, or their privies. It was unfair to
bind someone who was not a party to the arbitration, and by the principle of mutuality, Lincoln
should not be able to take advantage of an earlier award to which it was not a party.
A further aspect of the principle is that arbitrators have no jurisdiction to make rulings on the
substantive rights of third parties, or impose obligations on such third parties.
In Samsun Logix Corporation v Oceantrade Corporation,85 the Commercial Court held
ineffective an arbitration award purporting to determine the ownership of an asset to which there
was a third party claimant, who was not a party to the arbitration. Gross J considered that it would
be very difficult to conceive of a situation where a decision could be taken on rights in

rem without the affected parties having a right to be heard. Further, the arbitration award should
only be binding on the parties to the arbitration. Otherwise, on the facts of the case itself, a right in
rem would have been created impacting on a third party, and thus leap-frogging over the
established English case law on contractual liens.
In addition to the underlying principle that only parties to the arbitration agreement will be bound
by an award, there has been focus on another principle: namely, the right to be heard. As third
parties would have no right to be heard in an arbitration, they should not be affected by the
ultimate award. As outlined above, this was the first ground put forward in the reasoning of Gross
J in Samsun Logix Corporation v Oceantrade Corporation. 86 This is also consistent with
established case law to the effect that an arbitration award cannot order interference with the rights
of a third party.87 Merkin88 draws a distinction between the type of scenario arising in Samsun
Logix, concerning an ownership dispute involving a third party who had asserted a prior claim,
and an arbitration award which establishes a right which is enforceable against the world at large,
such as a decision on a copyright issue. However, this distinction seems questionable and Samsun
Logix would suggest that third parties would not be bound by such an award.
Further, a third party cannot challenge an arbitration award if it was not party to the arbitration
agreement pursuant to which the arbitration was held.89
The general principle is, however, subject to exceptions and there are certainly situations where an
award may have a binding effect on third parties:

(a) If the third party has entered into an agreement with the parties to the arbitration to be
bound by the award, even if it is not a party to the dispute.
(b) In circumstances where there is an agency relationship between the third party and the
party to the proceedings. This type of scenario has been considered above at section 5 of this
Chapter.
(c) Under section 82(2) of the Arbitration Act 1996, the award is binding on the parties and
the persons claiming under or through them.

There are further scenarios where an arbitration award in a proceedings between parties A and B
can have impact in proceedings between either A or B and a third party, C. For instance an
arbitration award may be disclosed in proceedings involving a third party where disclosure is
necessary for the protection of the legitimate interests of a party.90 Most typically an award will be
relevant against a third party to establish loss where a party in a chain of contracts is claiming an
indemnity against damages incurred further up the chain.91

10. COMPETITION LAW ISSUES


The position of third parties is particularly relevant when competition law issues are raised in an
arbitral forum since the issues will normally involve third parties. As discussed in Chapter 1
competition law is increasingly being raised in maritime arbitrations. Given the restricted impact
of arbitration awards, particularly in terms of confidentiality and failing to bind third parties, it is
questionable whether arbitral tribunals will provide sufficiently effective remedies to deal with
competition-related problems. It is beyond the scope of this book to deal with the issues that arise
but it may be necessary to manage client expectations as to the possible outcomes of the

arbitration process. It is certainly the case that an arbitral tribunal will not be able to provide the
range of remedies, sanctions or punitive measures which would be open to the official competition
regulators in an EU context. Much may depend on a partys intention in raising a competition law
point. Should a party wish to complain that an agreement is anti-competitive under Article 81, vis-vis the other party to the arbitration, this contractually focused dispute could be apt for
resolution and an appropriate remedy by an arbitral tribunal. However, should a party wish to raise
broader issues of competition law (e.g., involving market analysis in respect of abuse of dominant
position under Article 82), an arbitral body may have significantly more difficulty in either
analysing the entire dispute or providing an appropriate remedy. For instance, a party to a shipping
joint venture may wish to allege that the entire joint venture was anti-competitive, and that the
other party had colluded with port authorities and other bodies in an abusive fashion. It may be
difficult for an arbitral tribunal to deal properly with the latter accusation if the third party is
unwilling to take part in the arbitration. Further, there is no obvious remedy available to the
arbitral tribunal to prevent the conduct complained of since the tribunal cannot make orders
against third parties or interfere with their rights.
1 See Chapter 13 on confidentiality.
2 For detailed discussion of problems see Sir Michael Mustill and Anthony Diamond QC in
[1991] 7 Arbitration International 393 and 403 respectively. For an example of potential problems
see Petredec Ltd v Tokumaru Kaiun Co Ltd, The Sargasso [1994] 1 Lloyds Rep 162 and Sacor
Maritima SA v Repsol Petroleo SA [1998] 1 Lloyds Rep 518.
3 Appendix C to Second DAC Report [1991] 7 Arbitration International 390; Wealands v CLC
Contractors Ltd [1999] 2 Lloyds Rep 739 at 749.
4 Bremer Vulkan Schiffbau und Maschinenfabric Ltd v South India Shipping Corporation [1981]
AC 909; [1981] 1 Lloyds Rep 253; 1996 Act, sections 1(c), 35 and 44.
5 Oxford Shipping Co Ltd v Nippon Yusen Kaisha, The Eastern Saga [1984] 2 Lloyds Rep 373 at
379.
6 DAC Report on the Arbitration Bill, paragraphs 177-181; Appendix C to the DACs Second
Report on Consolidation, [1991] 7 Arbitration International 390.
7 1996 Act, sections 35 and 1(c).
8 Paragraph 180 of the DAC Report.
9 Abu Dhabi Gas Liquefaction Co Ltd v Eastern Bechtel Corporation [1982] 2 Lloyds Rep 425.
10 Petredec Ltd v Tokumaru Kaiun Co, The Sargasso [1994] 1 Lloyds Rep 162.
11 Reichhold Norway ASA v Goldman Sachs International [1999] 2 Lloyds Rep 567.
12 GAFTA Arbitration Rules Form No. 125, effective 1 July 2007. See also virtually identical
rules in FOSFA Rules, rule 6(c); Cocoa Association of London Rules, rule 8; Sugar Association of
London Rules, rule 403. There are procedural variations between the rules, but the core aim
remains the same.

13 Burkett Sharp & Co v Eastcheap Dried Fruit Co [1962] 1 Lloyds Rep 267. However, a
foreign court may be less willing to enforce an award except as between parties named in the
award.
14 Charles M. Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd [1999] 1 Lloyds Rep 225.
15 Abu Dhabi Gas Liquefaction Co Ltd v Eastern Bechtel Corporation [1982] 2 Lloyds Rep 425.
16 Paragraph 159 of the DAC Report.
17 1996 Act sections 24(1)(d) and 68(2)(a) or (c).
18 Oxford Shipping Co Ltd v Nippon Yusen Kaisha, The Eastern Saga [1984] 2 Lloyds Rep 373.
19 Paragraph 280 of the DAC Report (see also paragraph 106).
20 Aquator Shipping Ltd v Kleimar NV [1998] 2 Lloyds Rep 379 (decided under the Arbitration
Act 1950).
21 See Chapter 13 on confidentiality, Dolling-Baker v Merrett [1990] 1 WLR 1205 at 1213.
22 Sunderland Steamship P. and I. Association v Gatoil International Inc, The Lorenzo
Halcoussi [1988] 1 Lloyds Rep 180.
23 Sections 61 and 63 are not mandatory.
24 Arbitration Act 1950, section 18(1), as explained by Robert Goff J in Maritime
Transport v Unitramp Salen Rederierna, The Antaios [1981] 2 Lloyds Rep 284.
25 Wilh Wilhelmsen v Canadian Transport Co, The Takamine [1980] 2 Lloyds Rep 204.
26 Maritime Transport Overseas GmbH v Unitramp Salen Rederierna, The Antaios [1981] 2
Lloyds Rep 284.
27 Ibid.
28 Hammond & Co v Bussey (1880) 20 QBD 79.
29 Maritime Transport Overseas GmbH v Unitramp Salen Rederierna, The Antaios [1981] 2
Lloyds Rep 284.
30 Ibid.
31 However, this would run contrary to the decision in The Antaios and a similar type of argument
failed in Aiden Shipping Co Ltd v Interbulk Ltd, The Vimeira (No 2) [1986] AC 965 at 981.
32 Maritime Transport Overseas GmbH v Unitramp Salen Rederierna, The Antaios [1981] 2
Lloyds Rep 284 at 299. This case was decided under the Arbitration Act 1950 but sections 61 and
63 of the 1996 Act do not give a wider jurisdiction over third parties in this respect (see below at
section 4).
33 CPR Part 25, rule 25.14.

34 See CPR, Part 48.2; Singh v The Observer Ltd [1989] 2 All ER 751; Symphony Group
plc v Hodgson [1993] 3 WLR 830; Tharros Shipping Co Ltd v Bias Shipping Ltd [1995] 1 Lloyds
Rep 541; Nordstern Allgemeine Vericherungs AG vInternav Ltd [1999] 2 Lloyds Rep 139.
35 E.g. Coppee Lavalin NV (SA) v Ken-Ren Chemicals and Fertilizers Ltd [1995] 1 AC 38; [1994]
2 Lloyds Rep 109. Under the 1996 Act power to make orders for security for costs lies with the
tribunal (see Chapter 17).
36 Aiden Shipping Co Ltd v Interbulk Ltd [1986] AC 965; [1986] 2 Lloyds Rep 117.
37 1996 Act, section 1(c), as regards the courts reluctance to intervene except as expressly
provided; see Walker v Rowe [2000] 1 Lloyds Rep 116 on awarding interest on an award of costs.
38 CPR Part 48.7.
39 Ridehalgh v Horsefield [1994] 1 WLR 462.
40 See Bowstead & Reynolds on Agency, 18th edn.
41 See Treitel on the Law of Contract, 12th edn, Chapter 15.
42 Socony Mobil Oil Co Inc v West of England Shipowners Mutual Insurance Association
(London) Ltd, The Padre Island (No 2) [1990] 2 Lloyds Rep 191 at 200.
43 Montedipe SpA v JTP-TO Jugotanker, The Jordan Nicolov [1990] 2 Lloyds Rep 11.
44 Rumput (Panama) SA v Islamic Republic Shipping Lines, The Leage [1984] 1 Lloyds Rep 259
(decided under the Arbitration Act 1975). An assignee would similarly be treated as a party to the
arbitration agreement for the purpose of a stay application under the 1996 Act on grounds that he
is claiming under or through a party to the agreement within the meaning of section 82(2) of
that Act.
45 Schiffahrtsgesellschaft Detlev Von Appen GmbH v Voest Alpine Intertrading GmbH, The Jay
Bola [1997] 2 Lloyds Rep 279; Charterers Mutual Assurance Association Limited v British &
Foreign, 15 September 1997 (Diamond QC) 1998 Int L Proc 838. Here, the third party sued the
insurers in the French courts in reliance on French law allowing a third party to bring an action
directe. See also Charterers Mutual v ATICAM, 4 August 1998 (Clarke J) unreported.
46 [1997] 2 Lloyds Rep 279.
47 Starlight Shipping v Tai Ping Insurance Co Ltd Hubei Branch [2007] EWHC 1893 (Comm);
[2008] 1 Lloyds Rep 230; West Tankers Inc v Ras Riunione Adriatica di Sicurta, The Front
Comor [2005] EWHC 454 (Comm) [2005] 2 Lloyds Rep 257; Navigation Maritime
Bulgare v Rustal Trading Ltd, The Ivan Zagubanski [2002] 1 Lloyds Rep 106.
48 Where there has been an equitable assignment the usual (but not essential) practice is for the
assignee to join the assignor as a party to proceedings and the same principles would apply in
arbitration, see Sim Swee Joo Shipping vShirlstar Container Transport (Mance J) [1994] LMLN
374. If there has been a statutory assignment the assignee can sue in his own name.
49 1996 Act, section 73.

50 Montedipe SpA v JTP-TO Jugotanker [1990] 2 Lloyds Rep 11.


51 [1992] 1 Lloyds Rep 134.
52 [2000] 1 All ER Comm 964.
53 [2006] 2 Lloyds Rep 370; [2006] EWHC 448 (Comm).
54 Montedipe SpA v JTP-TO Jugotanker, The Jordan Nicolov [1990] 2 Lloyds Rep 11 at 19.
55 Baytur SA v Finagro Holding SA [1992] 1 Lloyds Rep 134 at 151; see also Charles M.Willie
& Co (Shipping) Ltd v Ocean Laser Shipping Ltd, The Smaro [1999] 1 Lloyds Rep 225 at 243.
56 [1992] 1 Lloyds Rep 134 at 151.
57 Socony Mobil Oil Co Inc v West of England Shipowners Mutual Insurance Association
(London) Ltd, The Padre Island [1984] 2 Lloyds Rep 408.
58 London Steamship Owners Mutual Insurance Association v Bombay Trading [1990] 2 Lloyds
Rep 21.
59 Montedipe SpA v JTP-RO Jugotanker [1990] 1 Lloyds Rep 11. See also doubts raised by Rix J
in Charles M. Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd, The Smaro [1999] 1
Lloyds Rep 225 at 242.
60 [2006] EWCH 448 (Comm); [2006] 2 Lloyds Rep 370.
61 See, e.g., New Zealand Shipping Co Ltd v A.M. Satterthwaite & Co Ltd, The
Eurymedon [1975] AC 154; [1974] 1 Lloyds Rep 534; for use of the doctrine of bailment on
terms in the context of reliance on a jurisdiction clause see K.H. Enterprise v Pioneer
Container, The Pioneer Container [1994] 2 AC 324 at 340; [1994] 2 Lloyds Rep 593 and The
Mahkutai [1996] AC 650; [1996] 2 Lloyds Rep 1.
62 The definition of contract of carriage by sea is made by reference to its definition in the
Carriage of Goods by Sea Act 1992.
63 Contracts (Rights of Third Parties) Act 1999, section 6(5).
64 Privity of Contract: Contracts for the Benefit of Third Parties: Law Com No 242, paragraph
14.14.
65 Article 6(1) of the European Convention for the protection of Human Rights and Fundamental
Freedoms, now given domestic effect in the UK by the Human Rights Act 1998.
66 Law Commission Report, paragraph 14.15.
67 Explanatory Notes to Contracts (Rights of Third Parties) Act 1999, paragraph 34. For the
courts approach to assignment see section 6 above (e.g., Schiffahrtsgesellschaft Detlev Von
Appen GmbH v Voest Alpine Intertrading GmbH,The Jay Bola [1997] 2 Lloyds Rep 279 at 285286); Charterers Mutual Assurance Association Limited v British & Foreign (15 September
1997). (Judge Diamond QC) [1998] 1 L Pr 838, Montedipe SpA v JTP-RO Jugotanker, The
Jordan Nicolov [1990] 1 Lloyds Rep 11 at 15.

68 Section 1 sets out in detail the scope of third-party rights, section 1(1) provides that: Subject
to the provisions of this Act, a person who is not a party to a contract (a third party) may in his
own right enforce a term of the contract if(a) the contract expressly provides that he may, or (b)
subject to subsection (2) the term purports to confer a benefit on him.
69 [2003] EWHC 2602; [2004] 1 Lloyds Rep 38, applied in London Arbitration 7/2006 [2006]
LMLN 688.
70 [2003] EWHC 2602; [2004] 1 Lloyds Rep 38.
71 See also, When can a Third Party Enforce an Arbitration Clause?, Ambrose [2001] JBL 415
at 421-424.
72 Section 1 of the 1999 Act confers rights on a third party to enforce a term of the contract and
it cannot have been intended that such enforcement would necessarily entail litigation. Such a
narrow construction would also be contrary to the wider purpose of section 8(1) which was to bind
the third party to arbitrate if he takes the benefit of the contract.
73 1996 Act, section 17.
74 Ibid., section 15(3).
75 See Nisshin Shipping Co Ltd v Cleaves & Company Ltd [2003] EWHC 2602; [2004] 1 Lloyds
Rep 38 on the application of section 8(1), although no issue arose as to appointment procedures in
that case. Case law on incorporation of charterparty arbitration clauses into bills of lading may
assist by analogy in determining the extent to which the courts may manipulate the appointment
provisions in an arbitration clause, e.g., Siboti K/S v BP France SA [2003] EWHC 1278 (Comm);
[2003] 2 Lloyds Rep 364). Appointments in three party cases may also raise issues of equal
treatment (see Siemens AG/BKMI Industrienlagen GmbH v Dutco Construction Company XVIII
YBCA 140 (1993)).
76 Ibid., section 35.
77 See above under section 3. It is unlikely that one of the parties could insist that the third partys
claim should be referred to a different tribunal, see Charles M. Willie & Co (Shipping)
Ltd v Ocean Laser Shipping Ltd [1999] Lloyds Rep 225 at 242-243.
78 Merkin, Arbitration Law, paragraph 15.28.
79 Charles M. Willie & Co (Shipping) Ltd v Ocean Laser Shipping Ltd [1999] Lloyds Rep 225 at
243.
80 Explanatory Notes to Contracts (Rights of Third Parties) Act 1999, paragraph 35.
81 Nisshin Shipping Company v Cleaves & Co [2003] EWHC 2602; [2004] 1 Lloyds Rep 38.
82 The interrelationship between confidentiality, and the use of material from an arbitration in
other proceedings involving a third party is considered elsewhere at Chapter 13. Similarly, the
costs implications in relation to third parties have been considered earlier in this chapter.
83 Sun Life Assurance Co v Lincoln National Life Insurance Co [2004] EWCA Civ 1660; [2005]
1 Lloyds Rep 606.

84 [2004] EWCA Civ 1660; [2005] 1 Lloyds Rep 606.


85 [2007] EWHC 2372 (Comm); [2008] 1 Lloyds Rep 450.
86 [2007] EWHC 2372 (Comm); [2008] 1 Lloyds Rep 450.
87 Turner v Swainson (1836) 1 M & W 572.
88 Arbitration Law, paragraph 17.17e.
89 For a Commonwealth (New Zealand) case discussing this principle see Methanex
Motonui v Spellman [2004] 1 NZLR 95.
90 Ali Shipping Corporation v Shipyard Trogir [1998] 1 Lloyds Rep 643, see Chapter 13 on
Confidentiality.
91 E.g. Stargas SpA v Petredec Ltd, The Sargasso [1994] 2 Lloyds Rep 412.

Chapter 16

Preliminary Issues
Preliminary Issues

1. Introduction
2. The arbitrators determination of preliminary issues
3. The courts determination of preliminary issues of law

1. INTRODUCTION
The resolution of a dispute referred to arbitration often depends, at least in part, on the
determination of a question of law which can be isolated from factual issues (e.g., the proper
application of a time-bar or the meaning of a contract term). Questions of fact which are
commercially determinative of a dispute (or parts of a claim) may also be separated from other
issues. Deciding these issues at the outset or in separate stages may avoid the need for a much
more costly and time-consuming investigation of the evidence. These sorts of question are often
referred to as preliminary issues. Preliminary issues can be of tactical significance since they
offer an opportunity to make or break a case at an early stage. As a result, the question of
whether the issue raised should be isolated and decided separately may give rise to considerable
disagreement. A preliminary issue may be dealt with in several ways:

(i) the arbitrator may decide it in an award;


(ii) a question of law may be referred to court1 under section 45 of the 1996 Act;
(iii) a question of law may be raised by way of appeal to the court from an award under
section 69 of the 1996 Act;
(iv) the tribunal or the court may rule on it as a jurisdictional issue.

Disputes as to an arbitrators jurisdiction often raise questions of law and fact which should
normally be decided before the arbitrator proceeds to an award on the merits. Otherwise there is a
risk of wasting time and expense on an award which is open to challenge for want of jurisdiction.
It is also common for both jurisdiction and liability to be disputed on the ground that there was no
binding contract or agreement to arbitrate. This sort of issue may be suitable for a preliminary
issue and when an arbitrator is confronted by this situation he must consider how he should
comply with his duty to resolve the parties dispute fairly and efficiently.2 The jurisdictional issue
will usually be decided by the tribunal under section 30 of the 1996 Act. That ruling may then be
challenged in court under section 67. Alternatively, the issue may be decided at first instance by
the court under section 32 of the 1996 Act. Means of resolving preliminary points of jurisdiction
are discussed in more detail in Chapter 6.

2. THE ARBITRATORS DETERMINATION OF PRELIMINARY ISSUES


Section 47 of the 1996 Act expressly empowers the tribunal to determine preliminary issues. It
provides that:

(1) Unless otherwise agreed by the parties, the tribunal may make more than one award at
different times on different aspects of the matter to be determined.
(2) The tribunal may, in particular, make an award relating
o (a) to an issue affecting the whole claim, or
o (b) to a part only of the claim or cross-claims submitted to it for decision.
(3) If the tribunal does so, it shall specify in its award the issue, or the claim or part of a
claim, which is the subject matter of the award.

This provision is also considered in Chapter 19. It gives the tribunal a very wide discretion as to
whether to determine different issues separately. This power is a counterpart to the tribunals duty
under section 33 to adopt procedures suitable to the circumstances of the particular case avoiding
unnecessary delay or expense. An arbitrator would be acting properly in proposing that an issue
be determined as a preliminary issue. However, he should give the parties an opportunity to make
submissions on such a proposal. The main factor in deciding whether to decide a question
separately from other issues is whether this will save time and costs without jeopardising the
parties right to a fair resolution of the dispute with a reasonable opportunity to put their
respective cases.3 The merits of the preliminary issue may be relevant in this context if its
determination will only save time if decided in favour of one party. The tribunal is not bound to
follow the approach that would be adopted in court proceedings.4 The DAC referred to the
particular ability of an arbitral tribunal (as opposed to a court) to tailor the procedure of the
arbitration to the circumstances of the dispute, thus enabling it to adopt novel ways of dealing with
disputes.5
The approach taken by the courts does, however, provide a useful guide to the appropriate factors
to be taken into account in deciding whether to determine a preliminary issue. In proposing
section 47, the DAC referred to the advantages of the case management role of the court in
selecting issues for early determination where they may be commercially determinative of the