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Commercial Arbitration | LawTeacher

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Commercial Arbitration

The dividing line between arbitration and expert determination is often blurred and
requires clarification by the courts – Critically discuss this statement:

Commercial
Arbitration
is a very complex area of law, because it usually consists of
disputes between companies that are not domiciled in the same state; therefore
there are differing laws and jurisdictions that may be applicable. The
following discussion is going to consider commercial arbitration within the UK
and internationally in order to determine its effectiveness. It must first be
noted that arbitration usually refers to alternative dispute resolution,
whereby there is a neutral third party. On the international level commercial
arbitration can be handled by neutral parties, such as the LCIA (London Court
of International Arbitration) or ICSID (International Centre for the Settlement
of Investment Disputes); as opposed to the traditional arena of the courts. There
is the added problem that there is a growing movement for courts to appoint an
expert to determine the facts of cases, with the direction of the court. Prior
to the 1996 Arbitration Act it could be said that expert determination and
arbitration were one in the same or the lines were blurred, because of the
similar role that the courts and the law played in both arenas. As the
following discussion will illustrate that the nature of Arbitration Law has
changed considerably that no longer is this line blurred. The first section of
this discussion will consider UK legislation and cases in respect to
Arbitration Law and compare it to the case of expert determination. It will be
noted that after the 1996 Arbitration Act there is a considerable change in the
nature of arbitration law, which makes the UK jurisdiction an excellent model
for the handling of cases from other jurisdictions. Throughout this exploration
there will be examples used of arbitration methods and the effectiveness of
procedures, especially when considering the circumstances of the cases.

Arbitration Law & Expert
Determination in the UK prior to 1996:

The first point that
one must consider is that the process of arbitration is used because it is much
more efficient and cheaper than the court process. Arbitration makes the
process a lot easier, in the most part; it brings both parties to the table in
a negotiable mood and finally it resolves the problem in a much cheaper manner.
An example of where arbitration has been most useful, outside of the commercial
ambit, is in divorce cases over the split of property and child visitation
rights. Arbitration in this circumstance is seen as the best route, because if
there are children there has to be a further relationship between the two
parties. This philosophy can be applied to the case of commercial arbitration,
because the two parties may be in a specific dispute yet they will not want to
harm future business and trading. Therefore the use of a neutral third party
that is looking for resolution is a much better approach than a judge deciding
which party is right and which party is wrong.
The jurist Sir Edward Blackstone defined arbitration as a bond entered into
by two or more parties to abide by the decision of the arbitrator.
Therefore under traditional English jurisprudence the arbitration agreement
is a contract between the disputing parties to abide by the decision that the
arbitrator has mediated. It must be noted that arbitration is a very old system
of law and therefore in the UK the arbitrator is bound by common law, statute
or a specific set of rules that the arbitration process is governed by.

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Arbitration in English
law was first used by merchants to resolves commercial disputes, which
illustrates how integral to commercial law arbitration is. If one considers
writers such a Shakespeare justice and arbitration is the key.
Under English law the first step to put the rules and procedures of arbitration
into statue began in 1698 with the first Arbitration Act, which was built on
the premise that it was an act for determining differences by Arbitration
It shall and may be lawful for all merchants and traders and others desiring to
end controversy, suit or quarrel by arbitration whereby they oblige themselves
to submit to the award or umpirage of any persons
agreed by the parties.
This was the first step towards the current1996 Arbitration Act. Previous acts,
such as the 1889 Act, brought in concepts that are essential to the process of
arbitration under English law. The 1889 Act brought in the concept of Statement
of Case
, which allows for an extra aid to the arbitrator upon points of
law; whereby the arbitrator may ask for advice and/or opinion from the courts.
This is a very similar procedure to the process that a Member State court can
ask for guidance to the European Court of Justice on a point of EU law; or in
the case of a court that is a signatory to the European Convention on Human
Rights (ECHR) can ask for an opinion on a human rights issue from the European
Court of Human Rights (ECtHR). Therefore the concept of statement of case is an essential factor of modern law and disputes, when there is a clash of
jurisdiction and rulings.
This will be illustrated as especially important when considering the current
problems that are being encountered in respect to the freedom of movement and
enterprise; especially with the given fears that there is a growing movement of
regime shopping. Regime shopping is the concept that the stronger party can
force the choice of where the case will take place, because it will tend to
give a positive ruling in the party’s favour. This usually means that there is
no neutral or objective viewing of the case as the stronger party has
controlled the direction of the case. The main point about the statement of
case
is that it leads to the court being another independent and
supervisory third party to ensure that justice is done. Therefore this movement
illustrates the growing symbiotic relationship between the arbitrator and the
courts; however this began to cause problems for arbitration because it was
becoming further hindered by the law. So instead of the arbitrator being able to
find a solution that may not strictly in accordance to the law, the arbitrator
was forced to abide by strict legal principle which the process of arbitration
much harder and lead to more complex proceedings which needed the supervision
of a solicitor. This has lead to the modern role of the arbitrator, which has
been well stated by Bingham who is an Arbitrator in London as:

Let me be clear. The arbitrator’s job is to decide
disputed facts using evidence established by the parties or an inquiry. Then, the
arbitrator applies the decided facts to the rules or laws applicable to the
parties’ relationships. And sometimes those rules or laws are disputed. He must
decide that quarrel too.

Expert determination is
another method for courts to reduce the workload and costs of the full legal
process. It is when the court appoints a legal expert to determine the facts of
the case and then with the supervision of the court to come to a decision. The
main difference between arbitration and expert determination is that it is
completely controlled by the legal process and the courts.
In the case of arbitration one is dealing with a process that was meant to
be outside the courts, but over time the courts started to play a supervisory
role and hinder the decisions available to the arbitrator.
As Roughton argues:

Elephants are said to be nearly impossible
to describe but very easy to recognise. The same has long been thought true of
both arbitrators and experts, particularly in light of the House of Lords’
ruling in Arenson v. Casson Beckman Rutley & Co. But the recent
judgment of Tomlinson J. in Inmarsat Ventures Plc v. APR Limited
challenges the notion that arbitrators and experts are completely different
animals, easily recognisable from each other. This arises from his decision
that a lawyer may determine a purely legal dispute on the basis of the
submissions and evidence before him, not as an arbitrator, but as an expert.

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Therefore as Broughton introduces there is a completely
different relationship between an arbitrator and an expert to the law. As
mentioned earlier courts may ask for expertise and opinion from the ECJ, which
is similar to the process as the arbitrator may ask on a legal point. Yet, due
to the sovereignty of parliament the opinion can be seen as persuasive and not
necessarily binding. This is the similar role of the courts and arbitrators;
however from the introduction of the statement of case this became blurred
and arbitrators became no-more than pawns of the courts. In other words one may
argue that the critics were rights and arbitration and expert determinations
are nothing more than the same animal, just wearing different clothing.

The difference between arbitrators and experts
has been reviewed in the case of Immarsat, which pointed to the fact
that experts as long as the courts direct that they have sufficient capacity to
do so can come to a legal decision. This view was approved in the earlier case
of Life Insurance Society v P&O Property Holdings Ltd where if
there is an agreement to allow an expert to determine a case then this
applicable as long as the courts view the expert as competent. This may seem
similar in a contractual sense to arbitration; however this is only prior to
the 1996 Act whereby the arbitrator was also bound by court supervision and
legal principles. In addition the Immarsat Case introduced another
quandary, which further separated the roles of the arbitrator and the expert,
which is that the aforementioned Norwich Union Case was overruled
therefore questioning the competency of whether an expert can determine the
decision. However the judge in the Immarsat Case ruled
that the National Grid and Mercury Communications cases did not
overrule the Norwich Union Case but just came to the determination that
the expert was not sufficiently competent to deal with the legal points.
Therefore this indicates a difference between an arbitrator and an expert
because one is dealing with the points of law; whilst the other (the
arbitrator) is dealing with the facts of the case and finding the best method
to solve the case. Yet, the problem with arbitration is that it got too tied to
the courts that it seemed that there was no difference between a decision made
by an arbitrator and an expert. Therefore, as the Immarsat Case has
illustrated questioned whether the decisions made outside that of the
traditional court proceedings are worth even the paper that they are written
on. This made the Arbitration Act 1996 very important because it meant the
discipline of arbitration was completely freed from the courts and the merging
lines between expert determination and arbitration were completely severed.
This will be illustrated in the following discussion of the re-birth of
arbitration and the introduction of the LCIA.

Arbitration Post 1996 Arbitration Act:

Arbitration
under English law is a well established legal discipline in areas from
resolving disputes between nations, companies and nations, companies and
companies. To reiterate a majority of the disputes transcend national borders,
especially in the shipping industry. For domestic disputes of a commercial nature
there are well established procedures and fast track processes, which makes the
need for arbitration less necessary. Therefore one has to ask why the
parliament invoked the 1996 Arbitration Act. The answer to this question is
that this Act opened the door for London to become a place of international
commercial arbitration. This act gives the arbitrator the powers and procedures
to make their decision, but most importantly it severs the symbiotic
relationship between the courts, the law and the arbitrator. In other words,
the Arbitration Act 1996 enables the arbitrator to shed the bonds that tied him
to the court. This was a very important step because it meant that the quick,
clear and just decisions could be made without the added complexity of law.
Arbitration law again has become a gentleman’s agreement to abide by the
decision of the arbitrator; however if this agreement is breached then is
subject again to the sanctions of law. It must be noted that because of the
complexity of modern commercial disputes it still means that it is necessary to
employ a legal professional, because knowledge of the laws and procedures are
still necessary.
Therefore, this move gave the arbitrators back the power, no longer are they
under the supervision of the courts. This means that there is a definite
separation in a dealing that is governed by expert determination and that of
arbitration. This is the argument of Broughton also, because the expert is not
a quasi-arbitrator just an individual that the courts deem fit to make
a decision that is completely supervised by them,
which is affirmed by the case of Arenson. In addition the case of Immarsat ruled that:

Inmarsat was not an “expert” in
the true meaning of the phrase–indeed, Tomlinson J. found it “novel”
if not “unusual” to “find a Queen’s Counsel appointed to carry
out an expert determination”. That said, he did not hold that the
“expert” was an arbitrator. That would have been wholly inconsistent
with the clear language of Clauses 7.3 and 7.4 which provided for the
appointment of an “expert” who was to act as an “expert and not
as an arbitrator”.

Therefore this case completely ruled out the merging lines
between the expert and arbitrator, which have been reconfirmed by the new
role of the arbitrator
in the 1996 Arbitration Act and the introduction of
the LCIA. The 1996 Act has just removed the red tape for the
arbitrator, who is a trained legal professional. Therefore Arbitration under
English law has become an in depth process of investigation, by the arbitrator
of the facts of the case. It is much cheaper than a court case and is not bound
by precedents as a court case would be. The arbitration is a contract between
the two parties to fins the best solution to the dispute as not to harm each
others reputation and future dealing between the parties. Also it must be noted
that the process is determined by the arbitrator in terms of what is in the
best interest of the two parties.
The arbitrator is bound to fine the most fair and cost effective approach to solving the dispute.
In the case of long term business clients this may include mediation, in order
to resolve the problem and to promote further business between the parties. In
the case of one-off business dealings it may be done on a documents basis only.
The most important feature of the 1996 Act is it made arbitration neutral, cost
effective, fair and most importantly flexible. In addition the 1996 Act
made London a place of international importance in the arena of Commercial
Arbitration Law.

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LCIA – London the Heart of International
Arbitration:

As previously mentioned
the Arbitration Act 1996 made London a place for international commercial
disputes to be resolved. The following discussion will consider the role and
effectiveness of the LCIA in modern arbitration proceedings. This will be
compared with the problems that have been encountered by domestic courts when
trying the resolve the differences between international companies and why it
is important that the Arbitration Act has freed arbitrators from the bonds of
the courts, which has made them distinct from experts.

LCIA – An Ideal Place for Fair, Fast and Cheap Dispute
Resolution:

The LCIA deals
with commercial disputes and provides a forum for individuals to turn to when a
commercial agreement crosses borders and a dispute arises and the need for
cheap, flexible and just arbitration is needed. The LCIA basic rules of
arbitration are as follows:

The LCIA
arbitration rules are universally applicable. They offer a combination of the
best features of the civil and common law systems, including in particular:

  • maximum flexibility
    for parties and tribunals to agree on procedural matters
  • speed and efficiency
    in the appointment of arbitrators, including expedited procedures
  • means of reducing
    delays and counteracting delaying tactics
  • tribunals’ power to
    decide on their own jurisdiction
  • a range of interim
    and conservatory measures
  • tribunals’ power to
    order security for claims and for costs
  • special powers for
    joinder of third parties
  • fast-track option
  • waiver of right of
    appeal
  • costs computed
    without regard to the amounts in dispute
  • staged deposits –
    parties are not required to pay for the whole arbitration in advance

Therefore the aim is to make
disputes easier to resolve, without going through a domestic legal system that
gives one party over the other an advantage. In other words, the spirit of
the Arbitration Act 1996 is relayed in the procedures and vision of the
LCIA. This can also be seen in the approach of the LCIA, which will now be
considered and then compared to the difficulties that some domestic jurisdictions
have encountered. It must be noted that arbitration decisions are confidential
so the factors that appeared in the courts will be used to illustrate how the
LCIA have taken on their discretionary powers in relation to costs and interest
to make it a forum for the international arbitration; whilst, on the other
hand, it respects the law of confidentiality highly except in the circumstances
that confidentiality can be breached in the interests of justice. This case law
review will illustrate that the powers that the LCIA arbitrators have are above
and beyond the supervised cases that experts determine on the behalf of judges.

Arbitrator’s Wide Discretion
Completely Separates them from the Courts:

The LCIA has come under
a lot of fire because it is taking its role seriously from both a commercial
and legal standpoint. It has taken the approach to awarding interest, which
seems in line with the act as per the Court of Appeal Case Lesotho Highlands
Development Authority v Impregilo SpA.
Charging interest may not seem to fall in line with the legal approach; however
one has to remember that the arbitrator’s are dealing with commercial parties
who know the consequences of non-payment or non-delivery and under the precepts
of contract law, businessmen are held at a different level of standing in
contractual dealings. In addition this falls under the broad powers of
discretion in the same way that the arbitration proceedings in the past have
allowed arbitrators to award costs, in much the same ways as the court of law.
There is an added criticism, which is the confidentiality rules that are
protected in English courts are becoming eroded through international
arbitration. The case of Dolling-Baker v Merrett was where the court granted an injunction restraining one party from disclosing
in any subsequent action documents relating to an arbitrationit considered
that the existence of such a duty derives from the nature of arbitration
itself, that is to say its private nature However, the court deemed also that
the principle of confidentiality could be overridden for example by the
parties’ consent or pursuant to an order or the leave of the Court.
This principle of confidentiality during arbitration was reconfirmed in the
case of Hasseneh Insurance Co of Israel v Stuart J. Mew,
except in the case of business efficacy and disposing fairly of the cause or matter or saving costs in
the action.
A further liberalization of the confidentiality rule
occurred in the case of London and Leeds Estates Ltd v Paribas Ltd (2) whereby it
allowed for the other party of the proceedings to obtain witness statements
prior to the proceedings in order to build a sufficient case. Finally, the case
of Ali Shipyard Corporation v Shipyard Trogir reconfirmed
the duty of arbitration proceedings to be confidential, but allowed for the
following exceptions:

(a) consent to disclosure of confidential
documents being granted by the other arbitrating party;

(b) the court has ordered disclosure of
the documents;

(c) disclosure is reasonably necessary for
the protection of the legitimate interests of an arbitrating party vis–vis a
third party in order to found a cause of action against that third party or to
defend a claim or counterclaim brought by the third party;

(d) where disclosure is required in the
interests of justice, i.e. as a matter of public interest, namely the interest
in ensuring that judicial decisions are

Therefore
illustrating that there is need for some flexibility to the rule of
confidentiality in arbitration proceedings, but it must be remembered that this
duty is tantamount. This duty and the procedures to confidentiality are held in
the LCIA, they accept the circumstances set by English law that this duty may
waived, where the ultimate goal is cost efficiency, speedy expedience, just and
neutral decision. This makes the LCIA an ideal centre for arbitration. Also it
illustrates that the powers that arbitrators have are completely free from the
supervision of the courts. This makes arbitration completely different in nature and power to expert determination, which is down to the mastery of
the 1996 Arbitration Act:

The Arbitration Act 1996 (“the
Act”) governs all arbitration proceedings commenced after January 1997
where the seat of the arbitration is in England. The Act has certain
similarities with the 1986 UNCITRAL Model Law on International Commercial
Arbitration; however, it does not implement or mirror the Model Law completely
and, in some respects, it can be considered an improvement. The Act has
variously been described as a “welcome contribution to English law”, “a
significant milestone” and as succeeding “admirably in balancing the
rival aspirations of finality and fairness”.

Conclusion – The 1996 Act has
made Arbitration Distinct:

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There is no question after the introduction of the Arbitration Act
1996
that expert determination and arbitration are completely separate animals.
The problem of line blurring dates back to arbitrators becoming more under the
control of the courts. As the courts became to get busier then the introduction
of experts to determine cases, under the supervision of the courts, was seen as
an aid to the growing workload. However, this is where arbitration and expert
determination came to cross paths as the supervisory role of the courts seemed
to indicate they were one in the same thing. This lead to a variety of cases on
whether the expert was an arbitrator or competent to rule on a dispute; however
as the Immarsat Case ruled expert determination is completely separate
from arbitration. This is further supported by the 1996 Act and the new role of
arbitrators in the LCIA, i.e. the courts have no power or jurisdiction over
arbitrationsthese dealings are neutral from any jurisdiction and only subject
to the UNCITRAL model, which makes the LCIA ideal for a neutral decision on a
commercial dispute. Therefore are expert determinations and arbitrations one in
the same? Prior to the 1996 Act this could be a positive argument; however
after this acts accession to English law the answer is no – arbitrations are
free from the courts and its legal precedents; whilst expert determinations are
bound by them but hold a position today that is similar to the arbitrator prior
to the 1996 Act so prior to this point yes their positions were blurred:

The decision in Arenson, it had been
suggested that the concept of the “quasi-arbitrator” was “obsolete”,
if not “dead”. That view has found reinforcement with the introduction
of the Arbitration Act 1996, whose mandatory provisions cannot be excluded by
the agreement of the parties. But the decision in Inmarsat must challenge that
view. It has created–if not re-created–a species of decision-maker that is
outside the scope of the Arbitration Act 1996 but which nevertheless acts
“in a judicial capacity”… If he can, reports of the
quasi-arbitrator’s death may have been greatly exaggerated.

Bibliography:

Blackstone
Commentaries 1768

Bingham, Arbitration, can be found at: Hunter
& Redfern, 2004

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