Upholding the Finality of Arbitration Awards
Whilst the Arbitration Act 1996 (the "Act") may be 25 years old this year, the key aims behind the Act, including that of upholding the finality of the award, continue to be reinforced by the courts. Last week the Courts and Tribunal Judiciary published the 11th edition of the Commercial Court Guide. As well as introducing a number of changes reflecting the impact of Covid-19, the amendments made notable changes to section O (Arbitration), consistent with the arbitration-friendly approach the English courts steadfastly adopt, in supporting the finality of arbitral awards and discouraging speculative challenges.
Achieving finality is one of the key reasons commercial parties choose to resolve their disputes by arbitration. The flexibility arbitration offers can be contrasted with the increasingly prescriptive approach adopted in the civil procedure rules. However, once the award has been issued, flexibility is off the table. By choosing English law as the law of the seat, parties can ensure the provisions of the Act apply to their arbitration. Unless the parties stipulate otherwise, the Act provides that an award is final and binding upon them (and on any parties trying to claim through them). Many institutional rules, such as those of the London Court of International Arbitration (LCIA), provide that parties irrevocably waive the right of appeal, meaning that no appeals on a point of law may be brought.
The Act does make provision for applications to the courts based on allegations that the arbitrators lacked substantive jurisdiction, or on the grounds of serious irregularity affecting the tribunal, the proceedings or the award. However, in practice, such applications rarely succeed. The English courts’ consistent pro-enforcement stance will be bolstered by these Commercial Court rule changes.
The new rules emphasise that challenging an arbitral award on the grounds of irregularity is only appropriate where there are "serious" grounds for thinking that an irregularity has occurred which has caused or will cause "substantial" injustice. Similarly, any challenges made as to the substantive jurisdiction of the arbitrators is only appropriate where there are "serious" grounds for the contention and must be supported by evidence supporting the alleged absence of substantive jurisdiction.
Any obviously speculative claim can now be dismissed without a hearing, if the court considers that on the basis of the evidence filed, the claim has "no real prospect of success."
Further discouragement of opportunistic appeals is provided in the form of costs sanctions. If a party challenging an award that has been dismissed on paper loses again after a hearing, the winning party can ask for costs to be awarded on the significantly more generous indemnity basis. The courts also have the power to order that the party challenging an award provide security for costs, or security for the award, as a condition of being able to pursue its challenge.
London remains a key centre for international arbitrations. Taken together these amendments to the Commercial Court rules signal clearly that parties seeking to use the English courts to make unreasonable challenges to arbitral awards face very significant barriers. The update is a tangible demonstration of the English courts’ consistently pro-arbitration approach in respecting and upholding the parties’ agreement to arbitrate rather than litigate their disputes.