So you really want to be an Arbitrator?

Mark Cato

• Publisher: Informa Law from Routledge
• Year: 2020
• ISBN:
  9781000341812
• Edition: 1
• Topic: Diritto
• Subtopic: Arbitrato, negoziazione e mediazione nel diritto

This text provides a concise overview of arbitration and offers guidance on the most important legal and practical questions which face the practitioner involved in an arbitration. The book includes: -

• the applicability of the laws of individual countries; international conventions and bilateral treaties and their relevance to the arbitral process;
• the arbitration agreement and how an enforceable agreement can be created and enforced, with reference to both institutional arbitration, such as governed by AAA, ICC and LCIA and ad-hoc arbitration;
• and the arbitral process, from appointment of the tribunal to the award and its enforcement.

The jurisdiction, powers and obligations of the tribunal are also examined in detail. The book also examines the role of UNCITRAL in overcoming the lack of unformity in the laws and rule relating to international commercial arbitration.

CHAPTER 1

INTRODUCTION

A god-daughter of mine, Thomasina, is a rising star in the City (of London). I believe she works for an international bank or finance company—she is certainly involved in commercial contracts both in the UK and abroad.

One day Thomasina came to see me and asked about arbitration.

She said that all of their contracts included a clause referring any dispute arising out of, or in connection with, that contract to arbitration and she really would like to know more about the process. I suspect that the fact that her boyfriend, Charley (Pilkington-Smythe), who works for one of those smart West End firms of surveyors and is a rent review arbitrator’s pupil—a “rent boy”, as it is known in the trade—may also have something to do with her sudden enthusiasm!

However, not to be too cynical about her motives, she told me that a dispute had arisen recently on a domestic contract with which she was involved and, although she was only on the fringes of the action, it had whetted her interest as she could see the possibility of acting herself as the arbitrator, in such a dispute. At some stage in the future, of course, she added with a sheepish grin, not wishing to belittle my advanced years. Anyway, she came to ask me, as a seasoned arbitrator, whether this was a realistic objective; but first, she said, she would appreciate an in-depth discussion of what arbitration was all about and how it worked in practice.

As the dear girl’s godfather, I had been called upon to do little more, over the years, than to cough up for birthdays and Christmases and attend the odd performance at school of such delights as Aristophanes’ The Frogs (in ancient Greek!) or some concert or other. I felt the least that I could do was to devote a little time to encouraging the bright young thing to join the serried ranks of arbitrators.

Of course, I agreed but warned that it would not be a five-minute chat. If she really wanted an in-depth discussion she could have it, but we certainly would not finish today. She accepted my caution with alacrity. So where to begin?

CHAPTER 2

HISTORICAL

Suffice it to say that arbitration is as old as trade itself. For our purpose, I explained, arbitration as a means of resolving trade disputes flourished in Britain certainly as early as Roman times and came into its own with the founding of the Courts of Pie Powder in the fifteenth century (a corruption of the Norman French pieds poudres—Dusty Feet—so named as it is said that the dispute was resolved before the litigants had time to shake the dust from their feet). These courts were presided over by law merchants where the emphasis was on speed, simplicity of procedure, and, more importantly, privacy, all of which we are attempting to return to today.

As the doyen of arbitration, Lord Mustill, said in his opus on the subject:

“It has been recognised for centuries that commercial men prefer to use arbitration rather than the courts to resolve business disputes.”

Why should that be? Broadly speaking because the perceived advantage of arbitration over litigation is just what those dusty merchants offered, privacy and flexibility of procedure. At least, flexibility of procedure, while having been available to the arbitrator, was not always used to advantage, and for a period arbitration fell into disrepute—indeed until quite recently—because, perhaps, of the increasing involvement of lawyers. It became little more than litigation without wigs. Some say, not entirely fairly in my view, that the process was hijacked by lawyers.

All of that has now changed, at least potentially, I told Thomasina, with the enactment of the Arbitration Act 1996—but more of that later.

CHAPTER 3

WHAT IS ARBITRATION?

Before we got into a detailed discussion of the procedures that are followed in arbitration, I asked Thomasina what she thought arbitration was. She suggested that it was a means of getting people together and trying to thrash out a solution to a dispute. She mentioned ACAS—the Arbitration and Conciliation Service, which is frequently used when there are disputes between employers and their workforce. I had to disenchant her and say that ACAS had very little, if anything, to do with arbitration, despite its name. It is, in fact, a pure mediation service.

When we had completed our consideration of arbitration I promised her that I would touch on the current vogue for ADR (alternative dispute resolution) as an alternative to arbitration, which includes mediation, and is currently enjoying some limited success.

To be fair to Thomasina, her description of arbitration was not far off the mark.

One definition I was given, as a student, was as follows:

“The private reference of a dispute or difference between two or more parties for a determination, after consideration of the evidence adduced and arguments of all parties, by a person or persons, validly appointed, acting judicially.”

Well, she said, if that is arbitration, it sounds pretty similar to litigation to me; with things like adducing evidence, argument and acting judicially. Inasmuch as an arbitrator must act fairly between the parties, giving each an opportunity of presenting its case and answering the case made against it, I told Thomasina that she was right. The arbitrator, in that respect, is like a judge. He makes his determination, as opposed to delivering a judgment (usually in the form of a written Award) based on the evidence, or, if you prefer it, based on the submissions made to him by the parties. The form which these submissions can take we will explore a little later when we look at the alternative procedures discussed during the preliminary meeting.

So far so good, she said. I understand that arbitration is a process, presided over by an individual, in private, who hears what the parties have to say about their dispute and then comes to a decision, based on what they have said, or have set down on paper, which decision he then communicates to the parties.

But where does this arbitrator’s power come from; how is he chosen; what if one party wants one arbitrator and the other party prefers somebody else; what happens once he has made his determination? You say it is usually set out in writing; how it is to be enforced? Her questions came out in a rush. Clearly, she was going to be a receptive pupil.

Hold you hard, as they say in Norfolk, one step at a time, I said. So many questions, all perfectly reasonable, but let us not run before we can walk. The best way I can illustrate many of the points that you have raised is to go through a fairly standard agenda for the meeting, which usually—and I stress usually, as this is not an invariable practice in all forms of arbitration—takes place at the commencement of the dispute, between the arbitrator and the parties. However, before we look at this agenda, I will just say this about the arbitrator’s powers and his authority.

SOURCE OF POWER AND AUTHORITY

Quite simply, the arbitrator’s power comes from the parties through a number of different sources—initially through the arbitration agreement, which can be incorporated into a contract such as those that Thomasina herself uses in commercial transactions. In such a case the clause would speak of referring disputes and differences between the parties to arbitration.

Most such arbitration clauses say a little more than that, although the two words “Arbitration London” have been held, in court, to be a valid arbitration clause. Most arbitration clauses are far more detailed, and some go so far as to spell out the procedures to be followed by the arbitrator in conducting the arbitration. This can either form part of the arbitration clause itself or, as often happens in standard contracts (such as the family of construction contracts, the JCT forms) through reference to published procedural rules (in the case of construction contracts, the JCT Arbitration Rules, the ICE Arbitration Procedure or, more recently, the CIMA Rules (designed to cover the whole of the construction industry)). We shall look at such rules in more detail when we come to consider my standard agenda, I told her.

At this stage, I warned the dear girl that many of the points that I would be discussing or illustrating in attempting to summarise the arbitral process would inevitably relate to construction and property matters. That, after all, was my field and the one I knew most about. Having said that, I emphasised that there were many other forms of arbitration, apart from construction. Possibly—almost certainly—the most popular and widely-used concerned rent reviews of commercial properties, I said. Although the numbers of referrals had fallen off considerably over the past few years, as inflation had dropped dramatically and rents had stabilised, there were still something in the region of 8,000 references a year, to be decided either by arbitration or expert determination.

The next, possibly most widely-used, field of arbitration exists in the maritime world. Indeed, much of our arbitral law has derived from maritime cases. As she was a well-educated girl there was no need for me to point out to Thomasina that, as we are a seafaring nation trading with all corners of the earth, disputes between shippers, the shipowners and the merchant venturers et al., had been around for a very long time.

However, I have been diverted from the point I was making about the source of the arbitrator’s power and authority, I said. Apart from the arbitration agreement itself, another source of power is the submission which the parties (or quite often the claimant by unilateral application) make to the arbitrator when he is first approached to deal with the dispute—in other words, what the parties ask him to resolve will limit his jurisdiction.

I apologised to Thomasina for using the legal expression jurisdiction, for, make no mistake, I told her, that is what it is in this context, as it has a very significant impact of the whole process of arbitration, and, like it or not, I would have to expand on this expression as we went through our discussion.

As the parties can inadvertently limit the arbitrator’s jurisdiction in the manner of their approach to him in the first instance, it is also possible for them expressly to limit his jurisdiction by agreement, I told her. Although this point strictly touches more on jurisdiction than on source of power, a limit on jurisdiction is certainly a limitation of the arbitrator’s power which must not be exceeded. If it is there can be dire consequences for both arbitrator and parties.

The third, and possibly the most important, source of power is Acts of Parliament (statutes) and common law. We are very fortunate in this country, as I mentioned previously, that quite recently (30 January 1997) a new “user-friendly” Arbitration Act (AA ’96) was brought into force.

Why was this so important? Thomasina asked. Surely it’s an informal process that does not require statute law at all? I referred her again to the definition of arbitration and the requirement for the arbitrator to act judicially. If you define judicially as “in the manner of a judge”, I said, then you will realise that there must be some basic rules laid down. This does not mean that the arbitrator is bound by the same rules and regulations as a judge (such as, for example, in the UK High Court, the White Book, or, as it is commonly called, the RSC—the Rules of the Supreme Court); but, while not being as constrained as a judge, the arbitrator is bound by certain conventions and protocol. If there is a written arbitration clause, then the Arbitration Act can apply—indeed it is a pre-requisite under the Act that the arbitration agreement be in writing for the Act to apply.

A number of the sections of this AA ’96 are mandatory, and therefore the parties are bound by them. Many other sections are open to the parties to agree or disagree on alternative procedures. Fundamentally, in the absence of agreement—and the parties frequently find it difficult to even agree on the time of day—the arbitrator is free to decide procedural and evidential matters (s.34 AA ’96).

Oh dear, Thomasina said, you’re already getting heavy and starting to mention sections of this Act. All I really wanted was a general description of arbitration. I told her that I made no apology for deliberately mentioning the part of the Act by its section number, as there were half a dozen or so such sections, of which anyone the slightest bit interested in arbitration, or at least contemplating becoming an arbitrator, must be aware.

So, I said. I shall mention just a few of the key sections of this Act as we go through because they can have an important influence on the way in which the arbitrator and the parties conduct themselves and the reference. Incidentally, I explained that the word reference is no longer used in the current Act. However, I continue to use it as I believe that it is suitably descriptive of the process of referring a dispute to the determination of a third person.

Having said that, Thomasina was relieved to learn that I did not intend to go through these key sections of the Act at this particular point in time, but would defer doing so until we discussed the agenda for the Preliminary Meeting, to which I referred earlier.

Apart from statute law, Thomasina asked, where does the common law come in? I explained that, so far as the law is concerned, the arbitrator is bound by the authority of decided cases, at least those of the higher courts: the High Court, the Court of Appeal and the House of Lords, in that order of precedence. If he gets the law so badly wrong that it substantially affects the outcome of the dispute he has been appointed to determine, this can be one of the grounds for appeal, as we will see later.

Does this mean that arbitrators need to be lawyers or have a sound knowledge of the law? she asked. I retorted that where complex legal points were involved in disputes the parties usually engage the services of lawyers who will explain the law to the arbitrator, or at least their view of it. With lawyers on both sides the arbitrator will frequently be presented with two different interpretations of the law, so that it is for him to determine which of the two interpretations presented to him he believes is most applicable to the facts of the case that he is hearing.

Having said that, there is provision in the AA ’96 for the parties to agree that the arbitrator acts ex aequo et bono, which I understand literally means by way of equality and goodness or, in simple language, that the arbitrator is not bound to decide the dispute in accordance with any formal system of law at all. For example, he would be permitted to apply the general sense of what is fair and just, rather than strict legal rules. A sort of wisdom of Solomon? said Thomasina questioningly. Not quite, I said. The arbitrator still has to act judicially and I am not sure that cutting the baby in half, or even threatening to, would pass muster.

It has been said that, subject to three limitations, there is an assumption that an arbitrator will have such powers as are necessary for the discharge of his obl...