This article was featured in Jus Mundi‘s 2023 Arbitration Year in Review, in collaboration with VYAPs, a yearly collection of articles from jurisdictions all around the globe updating you on arbitration-related developments from the previous year.
THE AUTHORS:
Mark Handley, Partner at Duane Morris
Oliver Kent, Senior Associate at Duane Morris
Paul-Raphael Shehadeh, Associate at Duane Morris
Casework Statistics
The Commercial Court Report 2021-2022 (published on 6 April 2023) notes “a very significant increase in the number of arbitration-related applications” and that a quarter of the Court’s claims arose from arbitration. The Report indicates a slight increase in applications under section 69 of the Arbitration Act and much larger increases under sections 67 and 68 (54 and 59% respectively).
The London Court of International Arbitration (“LCIA”) Casework Report 2022 shows 293 referrals for arbitration in 2022. Of that number, 88% were seated in London, and 85% applied English law. Close to 90% of parties to LCIA arbitrations came from 90 countries other than the United Kingdom.
The LCIA Report also notes that English arbitrators remain popular party appointees. Likewise, the ICSID Annual Report 2023 reflects that one in ten arbitrator appointments made in FY2023 was of a UK national.
Third-Party Funding Agreements
The Supreme Court in PACCAR Inc and others v. Competition Appeal Tribunal and others [2023] UKSC 28 (“PACCAR”) held that certain kinds of common litigation funding agreements were unenforceable. However, the ramifications of this decision in arbitration may never be felt, as the current government has now announced that the “damaging effects” of PACCAR will be reversed “at the first legislative opportunity”.
Reform of the Arbitration Act 1996
2023 also saw the Law Commission issue a Final Report on its review of the Arbitration Act 1996. A bill is now before Parliament and is expected to become law in the early months of 2024, bringing with it significant changes, including:
- A new default rule, where the arbitration agreement has no choice of law provision, that English law will apply to an arbitration agreement where this jurisdiction is the seat. This is regardless of the governing law chosen for the main contract. The Law Commission had proposed that this change impact only contracts executed after the entry into force of the new act. The revised bill currently before parliament, however, has the change impacting pre-existing contracts where arbitral proceedings post-date the new act;
- Codification of arbitrators’ duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality;
- Various immunities in relation to arbitrator challenges – albeit with some exceptions;
- The ability to issue arbitral awards on a summary basis;
- Removing some of the existing barriers to asking the court to make a preliminary ruling on the tribunal’s jurisdiction; and
- Changes to the policy behind court challenges to jurisdiction awards under section 67, which will restrict the ability of a party to raise a wholly new objection or to have the court re-hear evidence already heard by the tribunal.
UK Consumer Protections and the Enforcement of Arbitral Awards
In Payward Inc and Others v Chechetkin [2023] EWHC 1780 (Comm), the court refused to enforce a New York Convention (1958) award issued by a California-seated tribunal because UK consumer rights legislation rendered enforcement of the award contrary to public policy. The Consumer Rights Act states that where a consumer contract is closely connected to the UK, the Consumer Rights Act applies regardless of the governing law chosen by the parties. The Court found that Mr Chechetkin was a UK-based consumer and that the case had a sufficiently close connection to the UK such that the Consumer Rights Act applied. The court further determined that the Consumer Rights Act was an expression of UK public policy for enforcement, which was therefore refused based on the facts.
In Eternity Sky Investments Ltd v Xiaomin Zhang [2023] EWHC 1964 (Comm), the Court rejected a similar application to challenge the enforcement of an arbitral award based on the Consumer Rights Act. Bright J accepted that Mrs Zhang was a consumer of the Consumer Rights Act but found that the law with the closest connection was Hong Kong law.
Loss of Right to Object (Section 73 Arbitration Act)
Section 73 of the Arbitration Act deals with the timeliness, or otherwise, of objections relating to jurisdiction and procedural irregularity. In National Iranian Oil company v Crescent Petroleum [2023] EWCA Civ 826, the Court of Appeal confirmed that in a situation where a party sought to appeal a finding about the loss of the right to object re jurisdiction, the ability to appeal on section 73 would be the same as the right of appeal under section 67 – i.e., leave to appeal could only be given by the High Court and not the Court of Appeal.
The decision develops the case law in relation to section 73 and confirms the English courts’ pro-arbitration stance and their pursuit of speedy finality.
In another decision, an applicant had lost its right to object pursuant to section 73 because it continued to participate in arbitral proceedings
after learning of the grounds of the objection it later sought to assert. The span of time between knowledge of the grounds of the objection and the applicant’s next step taken in proceedings, sufficient to waive its right to object, was one day (Radisson Hotels APS Danmark v Hayat Otel Isletmeciligi Turizm Yatirim Ve Ticaret Anonim Sirketi [2023] EWHC 892 (Comm)).
Allegations of Fraud
P&ID v Nigeria
On 23 October 2023, the English Commercial Court handed down judgement in Federal Republic of Nigeria v Process & Industrial Developments Limited [2023] EWHC 2638 (Comm), the latest in a series of English court judgments in this long-running dispute. In this landmark judgment, Knowles J held that awards obtained by P&ID against Nigeria were procured through fraud and were contrary to public policy, so that they should be set aside pursuant to section 68 of the Arbitration Act.
P&ID had concluded a contract with Nigeria under which P&ID was to construct and operate facilities to process wet gas provided by Nigeria into lean gas for power generation. The contract contained an arbitration agreement for London-seated arbitration. After the project faltered, P&ID requested arbitration seeking damages for breach of contract and lost profits. The tribunal found that Nigeria had repudiated the contract and awarded USD 6.6 billion to P&ID, which, with interest, had grown to around USD 11 billion by the time of judgment.
The application to set aside the awards had been made years out of time, but an earlier judgment had exercised the court’s discretion to permit the application to proceed. Nigeria advanced considerable evidence of suspected bribes paid to government officials concerning the contract and the arbitration itself. Knowles J stopped short of finding that a civil claim for bribery was made out noting that such a claim would itself be subject to arbitration. However, he did find that P&ID had bribed one of the contract’s drafters, the legal director of the Nigerian Ministry of Petroleum. Witness evidence in the arbitration had concealed that fact while P&ID made ongoing payments to the individual.
In a further judgment in December 2023, P&ID was refused leave to appeal in Federal Republic of Nigeria v Process & Industrial Development Ltd (Re Ruling on Leave to Appeal) [2023] EWHC 3320 (Comm) while the court also held that the awards should be set aside rather than have the case remitted to the original tribunal. The judgments and the underlying facts of the case have led to a renewed focus on the need for institutional reforms to the arbitral process worldwide, and broader reflections on the best approaches to the problem of fraud on the arbitral tribunal.
Tuna Bonds Scandal
On 20 September 2023, the UK Supreme Court handed down its judgement in Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) & Ors [2023] UKSC 32, focusing on the scope and application of the mechanism for staying court proceedings in favour of arbitral proceedings found in section 9 of the Arbitration Act.
Each of the contracts at issue, which Mozambique alleged were obtained by fraud, contained an arbitration clause conferring exclusive jurisdiction on tribunals seated in Switzerland. Mozambique instituted proceedings in England, bringing claims in tort for bribery and unlawful means conspiracy. The defendants made jurisdictional applications contending that all of Mozambique’s claims were “matters” falling within the scope of the arbitration agreements, such that the Court must stay the English proceedings.
The Supreme Court held that none of the claims at issue in the English proceedings were “matters” within the scope of the arbitration agreements for section 9 whereas the Swiss tribunals had jurisdiction over questions regarding the underlying contracts, the English courts were seized of a discrete dispute concerning alleged fraudulent conduct.
The Supreme Court called for a two-stage process in applying section 9 in reaching its decision. First, identify the “matters” which are the subject of the section 9 application. Second, determine whether those “matters” fall within the scope of the agreement to arbitrate.
Intra-EU Arbitrations
On 24 May 2023, judgment was handed down in Infrustructure Services Luxembourg S.A.R.L and Energia Termosolar B.V. v Kingdom of Spain [2023] EWHC 1226 (Comm). The case concerned an International Centre for Settlement of Investment Disputes (“ICSID”) award under the Energy Charter Treaty (1994) (“ECT”) in favour of the claimants, which had applied to register the award pursuant to the Arbitration (International Investment Disputes) Act 1966.
Spain argued that the claimants were prohibited from relying on two exemptions to immunity contained in the State Immunity Act 1978 (“SIA”), namely:
- Pursuant to section 2(2), where there was a written prior agreement to submit to the jurisdiction of the English courts (“the First Exemption”); and
- Pursuant to section 9(1), where a state has agreed in writing to submit a dispute to arbitration (“the Second Exemption”).
In relation to the First Exemption, the claimants argued that Article 54 of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) (“ICSID Convention”) constituted a sufficient prior written agreement such that Spain had no immunity. Spain took the opposite position but, in any event, argued that Article 54 was never understood as containing a waiver of a State’s adjudicative immunity.
As for the Second Exemption, the claimants relied on Article 26 of the ECT as an arbitration agreement. Spain’s core argument was that, as the CJEU had determined in each of Achmea v. Slovakia (I) and Energoalians v. Moldova, “…there can be no valid arbitration provision adopted by Member States which grants jurisdiction to any arbitral tribunal that may touch upon matters of EU law” because of the primacy of the CJEU to determine all EU law matters. On Spain’s case, the agreement to arbitrate contained in Article 26 of the ECT was thus invalid.
The judgment held:
- First, the 1966 Act was clear. If Spain were correct, the only awards that could be registered would be those in which the UK was a party. In any event, Article 54 fell within the definition of a “prior written agreement” for section 2(2) SIA.
- The decisions of the CJEU cannot trump the UK’s treaty obligations under the ICSID Convention. Were Spain’s position correct, the decisions of the CJEU would have the effect of unilaterally changing the existing treaty obligations for all contracting parties to the ICSID Convention. The court did not accept this argument.
ABOUT THE AUTHORS:
Mark Handley is a Partner at Duane Morris and an experienced practitioner with a focus on commercial and investor-state arbitration as well as litigation. He has particular experience and expertise with litigation arising out of arbitrations.
Oliver Kent is a Senior Associate at Duane Morris specialising in dispute resolution with a focus on product liability and commercial litigation, particularly in the automotive and technology sectors. He has a wealth of arbitration experience, having been involved in CiArb, ICC, LCIA and ad hoc arbitrations, including litigation to enforce private and investor-state awards.
Paul-Raphael Shehadeh is an Associate at Duane Morris and specializes in international arbitration and commercial litigation in the energy, infrastructure and transportation sectors. His arbitration practice comprises investor-state and international commercial arbitration.
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*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
