Introduction
In the fifth and concluding instalment of our series focusing on the proposed reforms to the Arbitration Act 1996 (the Act) by the Law Commission, we explore the proposed expansion of English courts’ powers in support of arbitral proceedings, with a focus on two key aspects: (1) the power to issue orders against third parties, and (2) implementing peremptory orders made by emergency arbitrators.
Orders against third parties
Challenges relating to the involvement of third parties often arise when a party to the arbitration seeks preservation or delivery of documents or witness evidence from a third party, or attempts to extend the scope of the arbitration agreement to a third party.
A question then arises whether section 44 of the Act, which deals with the courts’ powers to grant specific interim measures in support of arbitration proceedings, extends to third parties. In essence, section 44 allows parties to the arbitration to seek assistance from the court in a limited, yet significant, range of arbitration-related matters, including securing evidence or preserving assets. This aims to ensure the effectiveness of the arbitration process.
The Law Commission identified a degree of ambiguity regarding whether the current form of section 44 applies to third parties. After a comprehensive review of relevant case law and its evolution, the Law Commission concluded that section 44 indeed extends to third parties. However, to eliminate any lingering uncertainty, the Law Commission proposes to make a minor amendment to section 44, explicitly referring to orders issued “whether in relation to a party or any other person”.
It is worth acknowledging that the case law concerning the application of the measures set out in section 44, as recognised by the Law Commission, is complicated. The proposed clarification is welcome but it is still expressed in non-specific and general terms. Its exact application to each specific case will depend on the specific requirements for each individual measure, as established in the complex body of case law.
Even with that caveat, the proposed clarification is a positive step, offering enhanced support for the arbitral process and bolstering the protection of crucial elements such as evidence.
Third-party rights of appeal
The Law Commission's clarification regarding the scope of court orders and their applicability to third parties raises a crucial question: what are the rights of third parties to appeal against such orders? This issue underscores the concerns discussed earlier stemming from the fact that third parties have not formally entered into an arbitration agreement.
Currently, under section 44(7) of the Act, the right of appeal is only available through the court that issued the order. The Law Commission proposes to make it explicitly clear that this restricted right of appeal under section 44(7) applies only to parties directly involved in the arbitration, and that third parties may seek an appeal not only from the court that issued the order but also from the court to which the appeal is made.
This distinction follows a logical path, as parties to the arbitration have willingly agreed to arbitrate their disputes and, in doing so, they have accepted limitations on their access to local courts for seeking justice. In contrast, third parties have not voluntarily committed to arbitration, thus retaining their full rights of appeal.
Emergency arbitration
As things stand, the Act does not address the relatively recent and evolving trend towards emergency arbitration that has developed in numerous arbitral institutions worldwide since the Act came into force.
Under the UNCITRAL Model Law, the rules of various arbitral institutions and the laws of multiple jurisdictions, disputing parties can appoint an emergency arbitrator in situations demanding urgent relief.
Section 44(3) through 44(5) of the Act addresses courts’ powers and procedures regarding interim measures in support of arbitration proceedings. In summary, section 44(3) empowers courts to issue interim measures when no arbitral tribunal has been constituted, provided there is an urgent need. Section 44(4) permits courts to issue interim measures when urgency is not a factor, either with the parties' agreement or upon permission from the arbitral tribunal. Section 44(5) reiterates the fundamental principle that courts should only intervene when the arbitral tribunal is unable to do so effectively.
Confusion had arisen regarding whether applications under section 44 were prohibited in cases where emergency arbitrator provisions were available. This confusion stemmed from the High Court case of Gerald Metals SA v. Timis [2016] EWHC 2327 (Ch), where emergency arbitrator provisions were available and the party’s application to the court for interim measures was unsuccessful. As noted by the Law Commission, in that case, the application was unsuccessful on its own merits, in a way unrelated to the presence of emergency arbitrator provisions and the court's rationale had been either overlooked or misunderstood by those commentators who wrongly connected the unsuccessful application with the presence of emergency arbitrator provisions.
The Law Commission acknowledged that there may be situations where the effectiveness of emergency arbitration is limited. But in those cases, the test of urgency under section 44(3) still has to be applied in the usual way – namely, by reference to whether the arbitrators (in this case emergency arbitrators) had the power and the practical ability to grant effective relief within the relevant timescale.
Having set the record straight regarding the clear misperceptions about the court's reasoning in Gerald Metals, the Law Commission concluded that the Act did not require modification in this respect.
However, the Law Commission believed that the Act could instead benefit from an update in relation to how it deals with the enforcement of peremptory orders made by emergency arbitrators. The Law Commission considered two possible reforms:
- ensuring that peremptory orders made by emergency arbitrators, if ignored by a party to the arbitration, can be enforced by the court in the same way as equivalent orders made by normal arbitrators; and/or
- expressly stating that section 44(4) – which currently allows applying for court orders on non-urgent matters only by agreement of both parties or with the permission of the tribunal – extends equally to emergency arbitrators.
In the end, the Law Commission recommended adopting both these solutions in parallel.
These clarifications and recommendations for updating the Act, particularly with regard to emergency arbitration, further demonstrates a proactive approach aimed at enhancing the effectiveness of arbitration under English law.
Client Alert 2023-243