This article was featured in our 2023 Construction Arbitration Report, which is part of a series of industry-focused arbitration reports edited by Jus Connect and Jus Mundi.
This issue explores the construction industry and presents a goldmine of information based on data available on Jus Mundi and Jus Connect as of May 2023. Discover updated insights into construction arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on construction projects, disputes, & arbitration from leading lawyers, arbitrators, experts, arbitral institutions, and in-house counsel.
THE AUTHORS:
Leith Ben Ammar, Of Counsel Greenberg Traurig
Aurore Nicaud, Associate Greenberg Traurig
Johnny Shearman, Group Practice Lawyer Greenberg Traurig
The introduction of the Arbitration Act 1996 (the “1996 Act”) established an effective and favourable framework for arbitration in England and Wales. When the 1996 Act came into force, it bolstered the existing and longstanding tradition of the courts of England and Wales supporting arbitration agreements and enforcing arbitral awards.
Not resting on any laurels, at the end of 2021, the Law Commission announced it would conduct a review of the 1996 Act. The aim of this review is to ensure that the UK – and London in particular – remains a leading destination for arbitrations.
The Law Commission conducted a first review and consultation throughout 2022 and published its proposals in September of that year. This was followed by a second consultation published in March 2023. The second consultation focused on the following key points:
- The proper law of an arbitration agreement.
- Challenges to awards under section 67 of the 1996 Act on the basis that the tribunal lacked jurisdiction.
- Discrimination in the context of arbitration.
Reforms to the 1996 Act in these areas may have implications for the construction arbitration landscape, particularly in light of the global wave of energy and infrastructure projects conducted by States transitioning from fossil-based systems of energy production and consumption to renewable energy sources.
Proper Law of the Arbitration Agreement
The current law in England and Wales for determining the proper law of an arbitration agreement was established in the Supreme Court judgment in Enka v Chubb [2020] UKSC 38. The dispute involved the construction of a power plant under a contract that included an agreement for disputes to be referred to the International Court of Arbitration of the ICC, with a London seat. However, the contract did not specify a governing law, either in relation to the contract as a whole, or to the arbitration agreement.
In short, the Enka decision resolved the following:
- In the event that the parties agreed, expressly or impliedly, what law applies to the arbitration agreement itself, this choice will govern the arbitration agreement, unless it is contrary to public policy.
- In the absence of such choice, and if the arbitration agreement forms part of a matrix contract, and if there is a choice of law applicable, express or implied, for the matrix contract, then said law will be applicable.
- However, the chosen law may be displaced in some circumstances (for example, where the law of the seat itself provides that the arbitration agreement is governed by the law of the seat, or where there is a serious risk that the chosen law might render the arbitration agreement invalid).
- In the absence of any choice of law anywhere, the arbitration agreement will be governed by the law with which it has the closest and most real connection. This will be the law of the seat of the arbitration (although, again, that chosen law could be displaced if there is a serious risk that the chosen law might render the arbitration agreement invalid).
The Enka decision established a complex framework for determining the proper law of the arbitration agreement and arbitrability, but it leaves room for argument – the Supreme Court itself was divided on the approach with a small majority winning out.
Where construction projects are concerned, these are often documented in a matrix of contracts, involving multiple, overlapping parties. Very much depending on the project, this suite may include concession agreements, license agreements, joint venture agreements, financing agreements and various agreements with sub-contractors and other interested parties.
Arbitration provides a route to consistency across multiple contracts which can be achieved through consolidation. However, any disparity in an arbitration agreement across multi-contract projects can give rise to satellite litigation, with typically delayed and inconsistent decisions.
The costs and time burden of dealing with multiple disputes may also be significant. Thus, it is crucial to identify these issues at the contract negotiation phase. For example, creating certainty by mirroring arbitration agreements in contracts down the supply chain means that liability
can be passed on seamlessly to the party ultimately responsible, without overly complicating disputes when they arise.
In addition, such certainty is also often a requirement to ensure project documents are “bankable” and funding may be obtained through project financing arrangements. The more complex and expensive a project is, the more certainty is required by potential lenders.
Yet, when large construction and financing contracts are being negotiated, whilst the seat of arbitration may be considered, the law of the arbitration agreement may not be a top priority. As evidenced by the underlying contractual documentation in Enka, it may be overlooked completely. Typically, the arbitration agreement is negotiated at the eleventh hour, is considered to be a minor aspect of the deal and is not reviewed by any international arbitration specialist. Additionally, many practitioners assume that the law of the seat is applicable to the law of the arbitration agreement.
Recognising the benefit of clarity, the Law Commission has proposed that a new rule be introduced into the 1996 Act stating that the law of the arbitration agreement is the law of the seat, unless the parties expressly agree otherwise in the arbitration agreement itself.
This proposed rule removes much of the opportunity for argument and satellite litigation. It would also, in turn, assist with the certainty required when it comes to obtaining project financing and enforceability of arbitral awards.
The knock-on effect of a default rule in favour of the law of the seat would see more arbitration agreements governed by the law of England and Wales, when those arbitrations are also seated here. Further clarity on the applicability of the law of the seat to arbitrability may ensure the often more generous English law rules on arbitrability and scope to be applied more widely.
Challenges to Awards under Section 67 of the 1996 Act
The Law Commission’s specific concern in relation to section 67 of the 1996 Act is to avoid situations where parties attempt to revisit, before the courts, a decision made by a tribunal when the tribunal has been asked to determine whether it lacks jurisdiction. Often these attempts amount to a rehearing rather than an appeal. Within this context, the Law Commission’s proposal is that:
- The court should not entertain any new grounds of objection, or any new evidence, unless those grounds or evidence could not have been reasonably advanced before the tribunal;
- Evidence should not be reheard, save exceptionally in the interests of justice; and
- The court should allow the challenge only where the decision of the tribunal on its jurisdiction was wrong.
The above is intended to be encapsulated in rules of court, rather than in legislation. However, irrespective of how it is effected, the proposal supports the traditional principle of kompetenz-kompetenz. In essence, it ensures that where a tribunal rules on its own jurisdiction before a court does, there is reason for some deference to be shown to that ruling and to the process which led to it. The contrary argument is that if a party did not agree to arbitration, the tribunal should never be ruling in the first place.
The effect of the proposed reform may not be felt as widely as the one addressing the proper law of the arbitration agreement – it will only come into play where a party seeks to challenge the jurisdiction of a tribunal.
However, the impact is likely to be significant when it does. Limiting the scope for subsequent challenge may deter satellite litigation altogether which, in turn, creates more certainty in terms of time and cost.
Where construction projects are concerned, the risk of satellite litigation is real and can spread quickly. Greater certainty would reduce risk, which may be the difference between a viable project and a costly one.
Discrimination
Impartiality is essential to arbitration’s offering. One way parties to an arbitration agreement seek to achieve this impartiality is by specifying that the tribunal must be made up of arbitrators of a different nationality to those of the arbitral parties. Accordingly, the Law Commission proposes that it should be deemed justifiable (albeit not essential) to require an arbitrator to have a nationality different from that of the parties.
There is already precedent as to the desirability of an arbitrator having a neutral nationality in a number of institutional arbitration rules used in construction agreements, for example Article 13.5 of the ICC Arbitration Rules. However, perhaps uniquely when it comes to the energy transition, the project documentation often involves state entities. Whilst independence from the State can be achieved, given the high stakes involved, unconscious bias cannot be ignored and the Law Commission’s proposal addresses this important factor.
Conclusion
The Law Commission’s proposals are only at the consultation stage and are subject to further changes, and it may be some time before any legislative amendments are brought in. However, the proposed reforms, as they stand, should give cause for construction specialists to continue to look favourably towards England and Wales as a core destination for resolving any disputes by virtue of arbitration.
ABOUT THE AUTHORS
Leith Ben Ammar is Of Counsel at Greenberg Traurig LLP. Leith’s practice focuses on complex, high value international arbitration, multi-jurisdictional litigation and fraud investigation. Leith represents clients from Europe, Africa, Asia and the Middle East (where he spent considerable time) across the construction, infrastructure, real estate, energy, mining, transport, consumer goods, technology, manufacturing, sports, and financial services sectors. He has particular experience in disputes involving very large and technically complex infrastructure, energy and real estate projects in emerging markets. He advises clients at all levels of the supply chain and at all stages of a project’s lifecycle, from early claim management and mitigation, to trial and enforcement.
Aurore Nicaud is an Associate at Greenberg Traurig LLP. She has broad experience in the construction and infrastructure sectors, primarily in the United States and Latin America. Aurore’s practice focuses on the representation of owners and developers of large real estate and infrastructure projects, in both transactional and dispute resolution capacities. She also has deep experience in commercial and investment international arbitration. Aurore negotiates and drafts legal documents with fluency in English, Spanish, and French. She received her legal training in the United States and Europe. She is licensed to practice law in multiple U.S. jurisdictions, as well as in Colombia, and was admitted to practice law in France (currently inactive).
Johnny Shearman is a Group Practice Lawyer at Greenberg Traurig LLP. Johnny is dispute resolution lawyer and has gained significant experience in handling a broad spectrum of domestic and international disputes. His legal knowledge encompasses complex contractual and tortious disputes, civil fraud and asset recovery, banking and professional negligence litigation and contentious insolvency matters. His experience includes disputes at all levels from County Court to Supreme Court proceedings, as well as international arbitration.
Find more data-backed insights in our 2023 Construction Arbitration Report
