Disputes Yearbook 2023:
Arbitration

English Arbitration Act – Law Commission publishes final report and draft Bill for reform

On 6 September 2023, the England & Wales Law Commission 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 arbitrators' duty of disclosure, including clarifying the duty is concerned with matters arbitrators ought reasonably to know and not merely their actual knowledge.

• Strengthening arbitrators' immunity, ensuring arbitrators do not incur liability for either resigning (unless the resignation is unreasonable), or liability, including for costs, in respect to an application for their removal (unless they have acted in bad faith).

• Express (non-mandatory) provision for summary disposal of issues, claims or defences, including jurisdictional objections, where the tribunal considers a party has "no real prospect of success" (while noting that tribunals likely implicitly possess this power).

• Preventing a full rehearing of a challenge to a tribunal's jurisdiction under Section 67 of the Act where a party has already challenged jurisdiction before the tribunal and the tribunal has ruled on the issue.

• A default rule for the arbitration agreement to be governed by the law of the seat, unless the parties expressly agree otherwise (applying to agreements entered into after the proposed legislation comes into force).

• Clarifying that the court's Section 44 (s44) powers in support of arbitral proceedings are exercisable against non-parties and providing for usual rights of appeal for non-parties.

• Enabling emergency arbitrators to issue peremptory orders enforceable by the courts and to give permission for applications to the courts under s44(4).

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. 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 next year.

For more information, see our blog post here.

Uncertain future of the Energy Charter Treaty

Following the European Commission's proposal on 7 July 2023 for a co-ordinated EU withdrawal from the Energy Charter Treaty (ECT), on 30 August 2023 the UK announced that it is reviewing its membership of the ECT. Both actions sit against a backdrop of unsuccessful attempts to modernise the treaty since 2019 (including a failure by the EU to ratify the modernised text of the treaty), and a number of EU member states having announced their withdrawal. The European Commission considers the ECT incompatible with the aims of both the European Green Deal and the Paris Agreement, paralleling concerns that the protections afforded by the treaty reduce states' ability to regulate climate change and energy transition issues. At the end of September 2023, the Energy Charter Secretariat additionally announced that the UK sought to exercise its rights under the ECT to deny the investment promotion and protection benefits of part III of the treaty to certain Russia-linked entities and to deny advantages to sanctioned Russian investors.

Anti-suit injunctions in support of foreign-seated arbitrations: View from the English courts

The Court of Appeal and High Court have, in two separate cases, 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, despite the seat of arbitration being in Paris. In a third, similar case, where the arbitration agreement was governed by French law, the English High Court refused to grant an ASI.

In general, English courts will 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. Most cases in which ASIs have been granted in support of arbitration have, however, involved an English-seated arbitration. The present cases demonstrate that an ASI can be granted even where there is a foreign seat, though the court will need to be satisfied that England is the proper forum for granting relief.

ASIs have become all the more important in respect of transactions involving Russian parties, given the Russian law which allows the Russian courts to take exclusive jurisdiction over cases which involve sanctions. Recent 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.

Arbitration in the spotlight: Who is a consumer and when can you agree to arbitrate?

International businesses who sell direct to consumers are increasingly looking to manage their disputes risk and standardise their international terms of business. As a matter of policy, it is not common internationally for business-to-consumer (B2C) disputes to be arbitrated because issues concerning consumers require the close supervision of national courts. B2C contracts also usually involve unequal bargaining power: they are largely standardised and not open to negotiation. As a result, arbitration clauses can give rise to complex arbitrability questions (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 £5,000 or less are deemed automatically unfair. If the claim is over £5,000, the clause might be deemed unfair.

The English courts have recently handed down three decisions relating to the arbitrability of consumer disputes in the context of English consumer legislation. Two of them arose out of online terms and conditions, and one out of a personal guarantee:

1. 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. Despite a valid arbitration clause, 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 directed a trial on the question of whether the arbitration agreement is valid. See our blog post here.

2. The second was the case of Chechetkin v Payward Ltd & Ors [2023] EWHC 1780 (Comm) in which 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. While 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 JAMS arbitration award would be contrary to public policy, because the specific public policy embodied in UK consumer legislation and the Financial Services and Markets Act 2000 required the issues in this case to be governed by English law and not to be decided overseas. See our blog post here.

3. 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 blog post here. An appeal against this decision is due to be heard next year.

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 in order 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.