Arbitration and the Courts – Hand in Hand?

Written by Nascu Ioan, Law Student at King’s College London

Change is a constant reality as the world attempts to evolve and find newer, better solutions to its problems. The legal sphere has been changed greatly by the increased globalization of the world and recent decades have given great prominence to a specific method of alternative dispute resolution: commercial arbitration.

Due to its nature, however, arbitration is to a very large extent dependant on courts – from issuing injunctions to the enforcement of the award, courts are ultimately what could make or break any arbitral tribunal.

England had at first been reluctant – courts used to have the prerogative of deciding whether arbitrations did indeed have jurisdiction or not – but this position has greatly shifted.

The first attack on the old position took place at the beginning of the new millennium with the Arbitration Act 1999 (‘the Act’) and the case of Vale do Rio Doce Navegacao SA v Shanghai Bao Steel Ocean Shipping Co Ltd[1]. Here the High Court had held that section 30 of the Act mirrored the “kompetenz-kompetenz” doctrine – that tribunals have the power to decide upon their own jurisdiction. This was vital, as it made arbitrations much more time and resource efficient as parties no longer needed to first apply to the courts for recognition of jurisdiction. The Act attempted to greatly limit the meddling of courts. Section 1(c) held that in matters governed by Part I of the Act no intervention except as provided should be made by the courts. The provision was motivated by international criticism of English courts which were perceived to “intervene more than they should in the arbitral process, thereby tending to frustrate the choice the parties have made to use arbitration rather than litigation as the means for resolving their disputes”.[2]

Subsequent cases reflected an agreement of the courts with such an attitude. In Hiscox Underwriting Limited & Another v Dickson Manchester & Co Limited & Another[3] Cooke J held that “[t]he court’s general approach should be a minimalist one of intervening only within the framework of the Act or in order to support the basic process of arbitration[4].

In Albon v Naza it was held by Lightman J that the underlying policy of the provision in 1(c) was that the court should only intervene to support rather than to displace the arbitral process.[5]

The Court of Appeal in Tedcom Finance Limited and Anor v Vetabet Holdings Limited and Others paved the way, in principle, for claimants to issue and serve proceedings on third parties outside the jurisdiction under section 44 of the Act.

Section 44 of the Act had to be read in conjunction with section 2(3) of the  Act, which provides that the powers conferred by sections 43 and 44 apply even if the seat of the arbitration is outside England and Wales or where no seat has been designated or determined.  It was therefore arguable that an order could be made under section 44 of the 1996 Act in aid of arbitration generally, and the Court’s power to do so was no longer dependent on any consensual agreement to arbitration in England.

The power that arbitral tribunals had gained was greatly curtailed by the West Tankers (Case C-185/07) in the European courts, where it was decided that the English courts would not exercise their power in order to enjoin a party within its jurisdiction from commencing or continuing proceedings in a foreign court within the Brussels/Lugano regime.

This decision was unfortunate as it permits a circumvention of arbitration agreements through the ability of commencing proceedings in other jurisdictions. The only remedy to this would be to seek an enforcement of the award within the English courts.

Outside the Brussels/Lugano regime, however, the area was still grey until 2013 when AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC[6] reached the Supreme Court.  The issue in the case was as follows: the parties had signed a contract that contained arbitration in England. Despite this, JSC commenced legal proceedings in Kazakhstan. As a response, AES applied to the English courts for an injunction as JSC was in breach of the arbitration agreement. There was no arbitration actually in existence and neither party had any desire to commence arbitration proceedings. However, AES maintained that the arbitration agreement imposed a negative aspect that there would be no other proceedings brought in relation to the contract.

A first attempt was to bring an injunction under section 44 of the Act however the judge at first instance (and the upper courts subsequently) held that this specific section only applied to actual or potential arbitrations, which was not the case.

A second attempt, which proved successful, was to take recourse under section 37 of the Supreme Court Act 1981. This section permitted courts to grant an injunction where one party can show that the other party has invaded, or threatens to invade, its legal or equitable right.

The Supreme Court held that on the present facts, the granting of an injunction under section 37 of the 1981 Act does not constitute an intervention under section 1(c) of the Act, as this section only relates to the court intervening in the arbitration process.

The willingness of the courts to assist arbitrations and detract parties from being able to circumvent their own agreement in relation to this aspect, has proved to be monumental in giving arbitrations the power that it lacked due to them not being attached to a legal system. This attitude can be interpreted in two different ways: from a rule of law point of view, it is a wonderful implementation of pacta sunt servanda – agreements between parties become law. However, on a more cynical note, it is a realisation of the importance of enabling arbitrations from a commercial point of view. London is one of the biggest centres for commercial arbitration in the world. Therefore, courts that would oppose arbitration would simply lead parties to seek arbitration in other jurisdictions, such as Singapore or Hong Kong.   

[1] [2000] EWHC 205 (Comm)

[2] DAC Report 11, para. 21.

[3] [2004] EWHC 479 (Comm).

[4] Ibid, at [41].

[5] Albon (t/a NA Carriage Co) v Naza Motor Trading Sdn Bhd [2007] 2 Lloyd’s Rep 420, Lightman J at [11].

[6] [2011] EWCA Civ 647