ENGLISH COMMERCIAL ARBITRATION IN 2023: A ROUND-UP

What are the most important English commercial arbitration developments of 2023? We have put together a round-up below. You can also check out our podcast where Professional Support Lawyer, Liz Kantor, and Professional Support Consultant, Vanessa Naish, guide you through their top developments of the past year, discussing their implications for practitioners and clients alike.

1. Reform of the English Arbitration Act

On 6 September 2023, the Law Commission of England & Wales released its Final Report on reform of the Arbitration Act 1996, alongside a draft Bill. While emphasising that "root and branch reform is not needed or warranted", a number of notable reforms were proposed, including codifying an arbitrator’s duty of disclosure, introducing a new rule regarding the governing law of the arbitration agreement, and introducing a power of summary disposal for decisions on issues that have no real prospect of success. For a summary of the Law Commission’s recommendations in its final report, please see our previous blog post here.

The Law Commission declined to make proposals on topics such as confidentiality, discrimination and appeals on a point of law.

The King's Speech on 7 November confirmed that the Law Commission's draft Bill will be considered in the forthcoming parliamentary session. The draft Bill was put before Parliament with a first reading in the House of Lords on 21 November 2023, and a second reading on 19 December 2023. We understand that the Law Commission intends to invoke a special procedure which may mean that the new legislation could receive royal assent mid to late 2024.

For more information, see our blogposts here and here.

2. Anti-suit injunctions in support of foreign-seated arbitrations - view from the English courts

In two separate cases brought by Deutsche Bank and Commerzbank respectively against RusChemAlliance the Court of Appeal and High Court have granted anti-suit injunctions (ASIs) restraining a Russian party from bringing proceedings in Russia in breach of an arbitration clause in an English law governed contract. The courts granted these ASIs despite the seat of arbitration being in Paris. In a third similar case brought by Unicredit against RusChemAlliance, where the arbitration agreement was governed by French law, the English High Court refused to grant an ASI. This third case is being appealed this month.

In general, English courts may grant an ASI where a contracting party brings proceedings in a foreign jurisdiction, in breach of an exclusive English jurisdiction clause or an arbitration agreement. In the past, the English court has only granted ASIs in support of English seated arbitrations. These cases confirmed that an ASI can be granted in support of a foreign seated arbitration, though the court will need to be satisfied that England is the proper forum for granting relief.

ASIs have become all the more important for transactions involving Russian parties, following the introduction of a Russian law which allows the Russian courts to take exclusive jurisdiction over disputes which involve sanctioned parties. These two decisions may lead to more applications for ASIs from the English courts where Russian proceedings have been commenced, particularly where there is an English governing law.

For more information, see our blog post here.

3. Arbitration in the consumer sector

Arbitration clauses can give rise to complex arbitrability questions (as to whether or not disputes can be arbitrated at all) in a B2C context. Under the Consumer Rights Act 2015, for example, arbitration clauses that relate to a claim that is £5000 or less are deemed automatically unfair. If the claim is over £5,000, the clause might be deemed unfair.

The English courts have handed down two decisions relating to the arbitrability of consumer disputes in the context of English consumer legislation this year:

• In Chechetkin v Payward Ltd & Ors[2023] EWHC 1780 (Comm), the English Commercial Court refused to enforce a foreign-seated arbitration award on the grounds that to do so would be contrary to public policy. The case concerned a dispute between Mr Chechetkin and the Payward group, which operates the Kraken cryptoasset trading platform. Payward received a favourable arbitration award in California which it sought to enforce in England. Whilst emphasising that mandatory B2C arbitration is not in itself unfair, the English Court concluded that in the particular circumstances of the case, enforcement of the arbitration award would be contrary to public policy. This was because the specific public policy embodied in UK consumer legislation and the Financial Services and Markets Act 2000 (FSMA) required the issues in this case to be governed by English law and not to be decided overseas. See our blogpost here.
• In Eternity Sky Investments Ltd v Mrs Xiaomin Zhang[2023] EWHC 1964 (Comm), the English Commercial Court rejected a challenge to an arbitration award on the grounds of public policy. Although the applicant argued that the terms of the underlying contract were unfair for the purposes of English consumer legislation, the court held that there was no “close connection” with the UK and therefore that the legislation did not apply. See our blogpost here.

These cases provide useful guidance on the interaction of UK consumer legislation with the international arbitration regime, and we can expect to see more cases on this topic in future. These cases are also a reminder of the need to seek advice to choose an appropriate dispute resolution clause based on the jurisdictions in which international business are selling to consumers and the specific circumstances of the relationship.

As arbitration clauses are increasingly included in online contracts, businesses should also consider whether their site architecture ensures that consumers have sufficient notice of these clauses. For example, in December last year, the Singapore High court also had to consider whether consumers who had purchased cryptocurrency had actual or constructive notice of arbitration agreements contained in online contracts, looking in particular at click-wrap and browse-wrap agreements. To find out more about that case, see our blogpost here.

4. Litigation funding agreements, DBAs and arbitration

The English Supreme Court confirmed in Paccar Inc v Road Haulage Association Ltd [2023] UKSC 28 that litigation funding arrangements based on a share of recovery are damages-based arrangements (DBAs) for the purposes of s.58AA of the Courts and Legal Services Act 1990. The court held that such agreements fall within the scope of the provision because litigation funders provide “claims management services” as defined for these purposes. Such litigation funding arrangements must therefore comply with the statutory requirements for DBAs. The decision only affects third party funders (rather than law firms) and more details about the decision can be found on our litigation blog post here. Since then, and in response to the decision in Paccar, the Government has proposed legislation to permit funder DBAs in opt-out competition class actions. The Paccar decision has also given rise to disputes between claimants and funders in concluded cases, as to whether a funder can enforce some elements of a funding agreement (such as those which require the funder to be paid a multiple of funding committed) even though any provision for payment of a percentage of damages is unenforceable following the Supreme Court's decision. In one particular case, this issue will be decided in arbitration. See our blog here for more information.

The regulatory regime surrounding success fee arrangements in England & Wales is complex and unclear regarding its application to arbitration.  Without judicial guidance on this point, most arbitration practitioners have adopted a conservative interpretation and considered the regulatory regime to apply to both English litigation and English-seated arbitration. See our blogpost here for more information.

5. Supreme Court ruling on the scope of the "stay" provisions under s9 of the Arbitration Act

In Republic of Mozambique v Privinvest Shipbuilding SAL and others [2023] UKSC 32, the Supreme Court unanimously found the Republic of Mozambique’s claims for, among other things, bribery, conspiracy and dishonest assistance against the defendants were “matters” which fell outside the scope of the arbitration agreements for the purposes of section 9 of the Arbitration Act 1996. Accordingly, the claims brought in the English court were not stayed and proceeded to trial.

This was the first time that the interpretation and application of the stay provisions of s9 of the Act were considered by the Supreme Court. A broadly drafted arbitration clause will usually encompass most possible disputes between contracting parties. However, this case highlights the particular challenges which may be presented by fraud or corruption claims, particularly where the factual matrix is broader than the contract containing the arbitration agreement. These claims can raise more substantive jurisdictional issues as to whether or not they fall within the scope of the arbitration clause and the outcome can, as in this dispute, be highly fact and case specific. Parties are advised to be aware of this point and the attendant risk of disputes across more than one forum.

For more information, please see our blogpost here. Interestingly, the Privy Council also ruled on how to define and identify "matters" which give rise to a stay of proceedings in the case of Family Mart v Ting Chuan [2023] UKPC 33, which concerned a petition to wind up a Cayman company.

6. Challenge upheld on the grounds of fraud and public policy

The Commercial Court upheld (in part) Nigeria’s challenge under s68 of the Arbitration Act to awards given in favour of Process and Industrial Developments Ltd (PI&D). The Court found that the awards were obtained by fraud and the awards (and the way in which they were procured) were contrary to public policy. In particular, the serious irregularities included (1) providing witness evidence to the tribunal that was false and known to be false (2) ongoing bribery of an official during the arbitration and (3) improper retention of privileged documents received during the arbitration.

The judgment was strongly worded and considered the actions of PI&D to be "the most severe abuses of the arbitral process". Thus this resulted in a rare successful challenge despite the high hurdle that is imposed.

Despite finding in Nigeria’s favour, Knowles J did not address in the judgment how the awards should be dealt with, deciding that he would hear arguments from the parties on this point at a later date. Since the judgment was published, we understand that at a hearing on 8 December 2023, Knowles J decided to set aside the awards rather than remit them to the tribunal for reconsideration. For more information, please see our blogpost here.

7. A reminder to challenge promptly

In Radisson Hotels APS Denmark v Hayat Otel Işletmeciliği Turizm Yatırım Ve Ticaret Anonim Şirketi [2023] EWHC 892 (Comm), the Commercial Court rejected an application made by Radisson Hotels APS to set aside, on the grounds of serious irregularity, a partial arbitral award relating to a hotel mismanagement claim brought by Hayat.

Despite the severity of the irregularity in this case (which related to ex parte arbitrator communication), the English Commercial Court concluded based on section 73(1) of the Arbitration Act 1996 that a party to an arbitration must act “promptly” if it considers that there are grounds on which it could challenge the effectiveness of the proceedings. If a party believes that it has grounds for objecting on the basis of serious irregularity, it should raise those grounds as soon as it becomes aware of them, rather than continue to participate in the proceedings. Given the decision to reject the challenge on grounds of delay, the Commercial Court did not consider the substance of the challenge.

For more information, please see our blog post here.

8. Other interesting international developments to be aware of:

• The Hong Kong Final Court of Appeal confirmed this year (following the English case of SL Mining) that arbitrators, not the courts, should have the final say on whether a party has complied with an escalation clause – a common contractual mechanism pursuant to which parties agree (for example) to negotiate, or mediate, before commencing arbitration. See our blogpost here.
• In the case of Vidatel v PT Ventures, the Paris Court of Appeal provided guidance on the French principle of equality and how it interacts with the parties' arbitration agreement. In that case, the ICC appointed the entire tribunal despite the parties' arbitration agreement. See our blogpost here.
• Following Decree No. 34 of 2021, which dissolved the Dubai International Financial Centre Arbitration Institute (the entity that operated the DIFC-LCIA), all arbitrations referring to the rules of the DIFC-LCIA were to be administered by DIAC unless otherwise agreed by the parties. The impact of this Decree was called into question by a recent order handed down by the Louisiana Eastern District Court on 6 November 2023. The judge refused to enforce a DIFC-LCIA arbitration agreement because DIAC was "not the same forum". This first instance decision of the Louisana courts will, of course, not be binding outside the jurisdiction. Decisions on this point from courts in the UAE and elsewhere in the GCC, and of course particularly before the DIFC Courts, will be closely followed in 2024.

For more information, please contact Craig Tevendale, Partner, Paula Hodges KC, Partner, Andrew Cannon, Partner, Chris Parker KC, Partner, Christian Leathley, Partner, Charlie Morgan, Partner, Hannah Ambrose, Partner, James Doe, Partner, David Nitek, Partner, Mike McClure KC, Partner, Vanessa Naish, Professional Support Consultant, Liz Kantor, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.