It is well established in international commercial arbitration that the courts at the seat of arbitration will have supervisory jurisdiction over the arbitral proceedings, including hearing any challenges to the validity of the arbitral award. In the recent case of Minister of Finance (Incorporated) and 1 Malaysia Development Berhad v International Petroleum Investment Company and Aabar Investments PJS [2019] EWCA Civ 2080, the Court of Appeal (Sir Geoffrey Vos, chancellor of the High Court, Newey and Males LLJ) considered the issue of the courts’ powers in section 67 (challenging the award: substantive jurisdiction) and section 68 (challenging the award: serious irregularity) of the Arbitration Act 1996. This article focuses on the Court of Appeal’s important discussion of the role and functions of the court at the seat of arbitration and the impact this has on the law and practice of international commercial arbitration.

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Brief facts and first instance decision

The matter concerned two arbitrations which had seats in London. The parties entered into a settlement deed (which contained an arbitration clause) compromising the issues in the first arbitration. However, the defendants subsequently argued that the terms of the deed were wholly unfair to them, which resulted in the defendants commencing a second arbitration. The arbitral tribunal in the second arbitration made a consent award which terminated the first arbitration and found against the claimants. This led the claimants to issue various court applications in the High Court, including challenges under s67 and s68, and the defendants applied to stay the claimants’ applications under s9 (stay of legal proceedings) of the act.

Although Mr Justice Knowles dismissed the defendants’ application, he did grant a stay of the claimants’ applications on case management grounds, because this was a rare case and compelling reasons justifying a stay had been established (Reichhold Norway ASA v Goldman Sachs International [2000] 1 WLR 173). He also explained that a stay would avoid unnecessary duplication of work between the court and arbitral tribunal, and therefore the stay saved time and expense. The case management order had the effect of allowing the second arbitration to proceed, thereby allowing it to carry out findings of fact regarding the consent award from the first arbitration. The claimants appealed on the grounds, inter alia, that the judge had only identified one justification (avoidance of duplication of work) for the stay and should have focused on the mandatory nature of s67 and s68.

Court of Appeal decision

The Court of Appeal allowed the claimants’ appeal and removed the case management stay. Sections 67 and 68 (which the defendants had agreed to by choosing London as the seat) gave the right to the claimant to challenge the award at the seat of arbitration and therefore the claimants should be permitted to challenge the award under the act. It held that the principle of party autonomy in arbitration meant that, where the parties agreed on London as the seat of arbitration, they also agreed to the application of the act and the supervisory role of the courts over their arbitration. The court explained the policy considerations underpinning the act by saying that it sought to strike a balance between the need to minimise court interference in arbitration (s1(1) of the act), while maintaining safeguards that are necessary in the public interest regardless of the interests of the parties (s4(1) of the act).

The court then provided a detailed exposition of the functions of the courts in arbitration in challenge applications. In such applications, it was the duty of the court to determine that challenge and to do so promptly. In doing so, the court performs an important public function which goes beyond the agreement of the parties. That important public function was explained by Mance LJ (as he then was) in Department of Economics, Policy and Development of the City of Moscow v Bankers Trust Co [2004] EWCA Civ 314, when he said that the courts act as a branch of the state and not merely as an extension of the consensual arbitration process and, as such, the court ‘acts in the public interest to facilitate the fairness and wellbeing of a consensual method of dispute resolution’. These functions of the court were, the Court of Appeal stressed, ‘crucial features of the courts’ approach to the resolution of arbitration claims’. The appeal court then elaborated on the public interest which is engaged when an award is challenged, by explaining that a valid award should be recognised and enforced within the jurisdiction. Further, an award which is valid in accordance with the laws at the seat of arbitration can be enforced under the New York Convention 1958, which obliges contracting states to recognise and enforce foreign awards and arbitration agreements.

The Court of Appeal also rejected the judge’s rationale for granting a case management stay in order for the court to exercise ‘a form of continuous supervision’ over the second arbitration by means of ‘regular reports’. The Court of Appeal held that no such jurisdiction of the court existed and that the court’s powers to intervene in an arbitration were strictly limited by the provisions of the act.

The Court of Appeal’s judgment serves as a valuable reminder of the importance of the seat of arbitration in triggering the supervisory jurisdiction of the courts over an arbitration. As the court made clear, once the parties invoke the court process, arbitration no longer remains a consensual process and the courts, acting as a branch of the state, will act in the public interest (beyond the interest of the parties), as explained by Mance LJ in City of Moscow. Therefore, choosing the seat of arbitration should never be underestimated. Further, it should be noted that the courts will rarely stay arbitration proceedings on case management grounds; it would be for the party seeking such a stay to demonstrate that there are rare and compelling reasons for such a stay to be granted.

 

Masood Ahmed is an associate professor at the University of Leicester and a member of the Civil Procedure Rule Committee