A ROUND UP OF COMMERCIAL ARBITRATION IN 2022: KEY DEVELOPMENTS YOU SHOULD KNOW

1. Third Party Funding: recoverability and regulation

In Tenke Fungurume Mining S.A. v Katanga Contracting Services S.A.S, [2021] EWHC 3301 (Comm), the Commercial Court considered a challenge to an arbitral award under s68 of the Arbitration Act on the grounds that the tribunal's award of the successful party's costs of third party funding constituted a serious irregularity. The Court refused the challenge, finding that the tribunal had not exceeded their powers or wrongly exercised their discretion in awarding third party funding costs. The case provides some clarity on whether an award of third party funding costs in arbitration constitutes a serious irregularity under the Act. However, it is important to note that the English court was not asked to rule on whether such fees are recoverable in arbitration as a matter of English law: i.e. whether it should be open to an arbitral tribunal to award third party funding costs in the first place. Given that there is no recovery of third party funding costs in English litigation, it leaves a difference in recovery between litigation and arbitration and raises the question as to whether this should be permitted. This is only likely to be addressed by the English courts in the rare (and perhaps unlikely) event that a party raises this point in a challenge or question of English law under s69 or s45 of the Act.

The issues of Tenke are particularly relevant given the recent EU proposal for the regulation of third party funding. In October, the European Parliament proposed a Directive to regulate commercial third party funding in the EU. The Directive intends to establish a legislative framework to safeguard claimants and monitor the activities of litigation funders in the interests of access to justice. This includes ensuring funders have sufficient financial resources to meet possible funding liabilities. Whilst at present the proposal appears to only apply to EU-seated arbitrations, it nonetheless highlights the growing interest in the regulation of third party funding.

For more information, please see these links to our Tenke blog, our blog on the EU draft directive and the EU's draft proposal.

2. Arbitration clauses in the consumer context: breaking new ground with e-commerce and digital assets

The English courts handed down two decisions relating to the arbitrability of consumer disputes in the context of e-commerce and digital assets.

The first was Soleymani v Nifty Gateway LLC (The Competition and Markets Authority intervening) [2022] EWCA Civ 1297, which concerned an application for a declaration that an arbitration clause in the terms and conditions of an online auction platform was unfair and invalid. The Court of Appeal refused to stay English Court proceedings commenced by the consumer, holding that the claimant's domestic consumer rights were a powerful factor in refusing the stay. The Court has directed a trial on the question of whether the arbitration agreement is valid.

The second was the case of Chechetkin v Payward Ltd & Ors [2022] EWHC 3057 (Ch), in which the High Court dismissed a jurisdictional objection to a claim in the English Courts.  With parallels to the Soleymani v Nifty Gateway case, this case concerned a cryptocurrency exchange that had mandatory terms and conditions providing for arbitration. Parallel arbitration and court proceedings were commenced, and the English Court was asked to determine a jurisdictional objection to the court proceedings. In dismissing the jurisdictional objection, the English Court found that recognition and enforcement proceedings relating to an arbitration award did not deprive the English Court of jurisdiction and that the jurisdictional application in question was not an appropriate way to have the English Court proceedings dismissed. The English Court also provided further guidance on the definition of "consumer" for the purposes of s15B of the Civil Jurisdiction and Judgments Act 1982 (CJJA).

As cryptocurrency disputes are on the rise, it will be interesting to see how these two cases develop next year and whether the English Court weighs in with some more concrete guidance concerning the interaction of UK consumer legislation with the international arbitration regime.

Read our blog on Soleymani v Nifty Gateway here and our blog on Chechetkin here.

3. All change in England & Wales? The Law Commission's Consultation Paper on the English Arbitration Act 1996

In late September, the Law Commission published its first consultation paper relating to its review of the English Arbitration Act 1996 (the Act). The stated aim of the review is to maintain the attractiveness of England and Wales as a world-leading seat of arbitration. The consultation paper covered a range of issues posed by the Act including the potential codification of confidentiality, the creation of an express duty of independence for arbitrators, whether s44 applies to third parties, and the proposed shift from rehearing to appeal under s67. The Law Commission's formal recommendations are expected to be announced in mid-2023. While we do not expect the arbitral landscape in England and Wales to see significant change, there is likely to be some fine-tuning as a result.

Read our blog on the Law Commission's consultation paper here.

4. Who decides disputes concerning pre-arbitration escalation clauses: the courts or the arbitral tribunal?

In C v D [2022] HKCA 729, the Hong Kong Court of Appeal gave an important judgment on the role of escalation clauses in disputes. The Court of Appeal held that disputes concerning escalation clauses should be resolved by the arbitrators chosen by the parties, rather than by the courts. Furthermore, findings of arbitrators on these issues should be final, binding and cannot be used as a basis to challenge the award, save for in exceptional circumstances. C v D reflects a growing trend to minimise judicial interference in the arbitral process by categorising disputes regarding pre-conditions to arbitration as matters of admissibility rather than jurisdiction. Furthermore, the case evidences the clear pro-arbitration stance of the Hong Kong courts, which should continue to carry significant weight in international case law, particularly for UNCITRAL Model Law jurisdictions.

Read our blog on C v D here. See our blogs on NWA & FSA v NVF and Sierra Leone v SL Mining for further consideration of these issues.

5. Validity of arbitration clauses where a document is "subject to contract": a shipping case with potentially broader ramifications for other industries

In DHL v Gemini [2022] EWCA 1555, the Court of Appeal considered whether an arbitration agreement was binding on the parties in circumstances where a pre-condition to the effectiveness of the contract had not been satisfied. The Court drew a distinction between disputes concerning (i) "contract formation" and (ii) "contract validity", before concluding that this case concerned "contract formation" and that there was no valid arbitration agreement. Accordingly, the High Court was right to set aside the award for lack of jurisdiction. DHL v Gemini provides useful guidance on disputes about the validity of the underlying contract where that contract contains an arbitration clause. Moreover, the Court clarified that, as a matter of English law, where it is found that the parties have not entered into a binding agreement in the first place, the arbitration agreement will generally not be binding either. In the light of this judgment, parties negotiating term sheets that are "subject to contract" should be advised that their arbitration clause may not be binding unless the parties specifically agree to be bound by the arbitration clause prior to entry into the main contract.

For more information, please see our blog post on DHL v Gemini here.

6. Game-changer ruling by US Supreme Court blocks discovery to aid global arbitrations

On June 13, 2022, the U.S. Supreme Court unanimously ruled in ZF Automotive US, Inc. v. Luxshare, Ltd., 21-401, 2022 WL 2111355 (U.S. June 13, 2022) that U.S. discovery cannot be ordered under 28 USC § 1782 in aid of international commercial arbitration and investor-state arbitration. This landmark ruling closed off a powerful statutory tool to obtain information supporting foreign proceedings but also resolved considerable uncertainty in international disputes. Before this ruling, there was conflicting case law about whether US District Court judges had broad discretion to permit foreign parties to obtain discovery in the US in support of foreign arbitration. The Supreme Court has now clarified this issue after consolidating two cases in which parties sought assistance from US courts to order discovery.

The ruling is a game-changer for the gathering of evidence for arbitrations with a US nexus, making it harder for foreign parties to secure potentially crucial material supporting international proceedings. Although the US courts can still provide some degree of assistance in proof-gathering in arbitrations governed by the Federal Arbitration Act, it marks the end of the debate on Section 1782, clarifying that the provision does not apply to international commercial or investment treaty arbitration.

For more information, please see our blogpost on this case here.

7. Different views from across the Channel: Why you should always specify the law which governs your arbitration agreement

In the case of Kabab-Ji SAL (Lebanon) v Kout Group (Kuwait), the English Supreme Court [2021] UKSC 48) and the French Cour de Cassation (Case n° 20-20.260 of 28 September 2022) reached different conclusions on which law governed an arbitration agreement, leading to inconsistent results. The key issue in dispute was whether the defendant was party to the arbitration agreement. As a matter of English law, the Supreme Court held in late 2021 that the defendant was not a party to the arbitration agreement and thus there was no arbitration agreement binding the parties under which the Tribunal could issue an award.  This led the English Supreme Court to refuse enforcement of the award. Conversely, in a judgment in October 2022, the French Court held that the defendant was bound by the arbitration agreement as a matter of French law, and so upheld the award.

Practically speaking, this case serves as a useful reminder for parties drafting arbitration clauses that they should include an express governing law provision in their arbitration clause in order to (i) save the time and expense that can be incurred in this type of procedural dispute, and (ii) ensure that their award is binding and enforceable at both the seat and place of enforcement.

For more information, please see our blog on the English Supreme Court judgment here. The French judgment can be found here.

8. Other interesting cases of 2022

• The case of NDK Ltd v HUO Holding Ltd [2022] EWHC 2580 (Comm) applied the pro-arbitration Fiona Trust principle to a joint venture context, holding that it would have been commercially "absurd" for parties to have intended the same dispute to have been decided in separate arbitration and court proceedings, depending on whether one of the parties was a current or proposed shareholder. For more information, please see our blog on NDK here.
• In NWA & FSA v NVF & others [2021] EWHC 2666 (Comm), the English High Court declined to set aside an award on the basis of a failure to mediate a dispute before referring it to arbitration. This is another interesting judgment clarifying that questions of compliance with an escalation clause go to admissibility rather than jurisdiction. To learn more about this case, read our blog post here.
• In National Investment Bank Ltd v Eland International (Thailand) Co. Ltd and another [2022] EWHC 1168 (Comm), the English High Court considered the interaction between sections 72(1) and 18 of the English Arbitration Act 1996. The Court found that the Court's appointment of an arbitrator under s18 of the English Act will not erode a non-participating party's right to contest jurisdiction under s72 of the Act. For more information on NIB v Eland, read our blog here.
• In WSB v FOL [2022] EWHC 586 (Comm), the Commercial Court dismissed an application to set aside an order which dismissed challenges under sections 67 and 68 of the Arbitration Act 1996 (AA 1996) on the papers and refused permission to appeal under AA 1996, s 69. This case provides interesting practical guidance on the English Court's approach to challenges to arbitral awards. Read our blog on WSB v FOL here.