Introduction
In this third instalment of our series of articles dealing with the proposed reforms to the Arbitration Act 1996 (the Act) by the Law Commission, we examine the proposed reforms to challenging substantive jurisdiction of arbitration tribunals under s. 67 of the Act (retrospective challenge to arbitration awards on the basis of a lack of jurisdiction) and s. 32 of the Act (a prospective request for the court to rule on the tribunal’s jurisdiction).
Current law on challenging the jurisdiction
The underlying principle is simple – a tribunal can decide the matters put to it only if it has substantive jurisdiction. It will have substantive jurisdiction if three conditions are met: (i) there is a valid arbitration agreement; (ii) the tribunal is properly constituted; and (iii) the matters it has been asked to decide have been submitted to arbitration in accordance with the arbitration agreement.1
Under the Act all tribunals have the competence to rule on their own jurisdiction.2 However, where one party believes that the tribunal lacks substantive jurisdiction, it can challenge it in one of three ways:
- under s. 32 of the Act, it is possible to ask the English court to decide whether the tribunal has substantive jurisdiction or not, provided that both parties agree to this, or the tribunal permits it despite the other party’s objection;
- under s. 72(1) of the Act, the party can seek a declaration or injunction from the court, but only if they take no part in the arbitral proceedings; and
- under s. 67 of the Act, the party can challenge the tribunal’s award on the basis that the tribunal lacked substantive jurisdiction.
Notably, the Supreme Court decision in Dallah3 confirmed that jurisdictional challenges under s. 67 should proceed by way of a full rehearing. This is even if there had already been a full hearing on jurisdictional issues before the tribunal, in which case the court should disregard the tribunal’s own findings on the question of jurisdiction.
Section 67 – a review or a rehearing?
The most significant recommendation made by the Law Commission in the context of jurisdictional challenges is that – contrary to the decision in Dallah – the courts should not approach s. 67 challenges as a full rehearing; at least not where the tribunal has previously ruled on its jurisdiction, and the party now seeking to challenge that ruling participated in the process.
The Law Commission’s recommendation is that, in such cases, two limitations should be introduced:
- the court will not entertain any new grounds of objection, or any new evidence, unless it was not possible with reasonable diligence to put them before the tribunal; and
- the original evidence will not be reheard, save in the interests of justice.
This proposed move away from a full rehearing would help reduce the additional delays and costs that otherwise result from repetition. It also forces the objecting party to make all its objections up front, rather than deploying them in waves over a period of time, which could in itself cause delays and increase costs.
A full rehearing can also potentially lead to procedural unfairness by allowing the losing party a second bite of the cherry having learned from the tribunal’s criticism of its original position, as expressed in the award. The losing party can then put its case differently to the court – if necessary using new arguments and new evidence – in an attempt to cure any defects or deficiencies identified by the tribunal. At its most extreme, this can incentivise a highly tactical approach to the initial challenges before the tribunal, and lead some parties to treat them as a mere practice drill before the true game-day in court. A party taking that approach may even deliberately refrain from deploying some – perhaps even their best – arguments before the tribunal, choosing instead to keep their powder dry until the last possible moment.
The Law Commission recognised that the court’s existing case management powers allow it to control, at least to an extent, what arguments and evidence are put before it. That could in theory be enough to safeguard against unscrupulous attempts to gain a tactical advantage. However, these powers are generic, and there is little specific guidance on when or how they should be used. That creates a concern about the unpredictability, and potential inconsistency, of outcomes, when certainty is clearly preferred.
Clarifying the role of s. 32
Initially, the Law Commission set out to consider whether the proposed changes to the s. 67 regime should also apply to s. 32. In an interesting twist, the Law Commission was in the end persuaded by some consultees to make a different recommendation altogether – that the Act be amended to clarify that the s. 32 process is available only as an alternative to the tribunal ruling on its jurisdiction.
As things stand, it is at least arguable that s. 32 can be used after the tribunal has already ruled on its jurisdiction.4 However, the more logical – and arguably the proper – route to challenge jurisdiction after the tribunal has already ruled on it is via s. 67. Arguably, having an alternative or additional route via s. 32 therefore creates unnecessary complexity and uncertainty. The Law Commission therefore proposes that s. 32 should be restricted to operating as a direct access route for getting the court to decide the question of the tribunal’s jurisdiction as a preliminary point.
Practical issues
The Law Commission’s recommendations regarding s. 67 and s. 32 are likely to be welcomed by the majority of practitioners and arbitration users because they have the potential to improve expediency and lower costs, while also improving procedural predictability and fairness of process in the context of jurisdictional challenges.
Some important practical implications of the proposed reforms still need to be considered:
- Exceptions to the limitations. The proposed prohibition on bringing new arguments or evidence during a s. 67 challenge would not apply where it was not “possible with reasonable diligence” to put the arguments or evidence in question before the tribunal. Similarly, rehearing of original evidence would not be prohibited where necessary “in the interests of justice.” Both caveats are vague, and obviously untested in the present context. The Law Commission suggested that “interests of justice” could cover situations where the record of the original evidence is unavailable, or possibly where one party’s evidence was not admitted by the tribunal (depending on the specific reasons). However, this non-binding commentary adds little clarity in practice. If the proposed reform is adopted, expect to see the limits of the two caveats tested and the position to remain uncertain until ruled upon by the courts.
- Threshold for participation. It is also proposed that the new limitations on rehearing would apply only where the objecting party had already participated in the arbitration before the tribunal ruled on its jurisdiction. Otherwise, the s. 67 challenge is the objecting party’s first chance to present their challenge, and so no concern about repetition or second bites of the cherry arises. The principle makes obvious sense, but it is not entirely clear what steps or actions will count as “taking part in the arbitration proceedings” in practice. Some guidance may arguably be derived from the courts’ approach to s. 73(1), but this is not a perfect analogy since the context, intended effect and exact wording of the two provisions are not identical. This could be another hotly contested area after the reform.
- Ruling or award. The intended combined effect of the proposed changes to s. 67 and s. 32 is to create two distinct pathways for jurisdictional challenges: (i) the tribunal can make an award first, which can then be challenged under s. 67; or (ii) the court can be asked to rule directly under s. 32 if there has been no prior decision by the tribunal. A problematic and unintended lacuna may be created where the tribunal ‘rules’ on its jurisdiction otherwise than through a formal ‘award’. This could be enough to preclude the use of s. 32, since the proposed amendment to the Act refers to whether the tribunal has already ‘ruled’ on the point. At the same time, s. 67 could potentially also be unavailable, since it allows only for challenging ‘awards’. This could have a disastrous effect on the party seeking to challenge jurisdiction. This is clearly not the intention behind the reform, and tighter wording may be needed to avoid such a gap.
- Issue estoppel. Many commentators have expressed concern that a s. 67 challenge which is not a full rehearing may not be enough to trigger an issue estoppel when enforcing the award abroad. The objecting party could then launch yet another jurisdictional challenge before the foreign enforcing court. The resulting delays and increased costs would likely be much greater than the savings made by avoiding a full rehearing in England. The scope for uncertainty and procedural unfairness would also be much greater, making the s. 67 reform a pyrrhic victory. The Law Commission was not convinced about the significance of this risk, in part because it expects foreign courts will still find an issue estoppel even in the absence of a full rehearing. However, given the vast differences between judicial attitudes across the globe, this is far from a safe assumption, especially when it comes to jurisdictions where achieving a quick and easy enforcement against local counterparties is already seen as difficult. The Law Commission has pointed out that the objecting party is not required to use s. 67 as a precondition to challenging the enforcement of the award before a foreign court, but this does not alleviate the risk that parties will in fact still use s. 67 first, including specifically to gain the same tactical advantage that the reform is intended to protect against – getting two bites of the cherry.
- Using rules of court. The Law Commission recommended that the s. 67 reform be implemented via the rules of court rather than through the Act directly. The stated aim is to allow greater flexibility in case the proposed reforms need to be “tightened” or “relaxed” in due course. Such flexibility may help fix some of the potential problems flagged above if they actually arise in practice. On the other hand, this may create an impression that these rules are under a constant state of review, creating more uncertainty. It may also encourage some practitioners and arbitration users to continually test, and push, the limits of these rules, and even more uncertainty may be created if different specialised courts end up adopting different rules in this context.
In summary, while the proposed reform to the jurisdictional challenges under s. 67 and s. 32 is a welcome step in combating delays, unnecessary costs and potential unfairness, there are still aspects of the recommended changes that create potential uncertainty. Until these areas are clarified, whether in the legislation that is ultimately enacted or in the subsequent case law, the risk of unnecessary delays, wasted costs and inconsistent outcomes will persist, and some parties may still seek to gain an unfair tactical advantage by gaming the process.
Our next article in this series will address the proposed reforms to the Arbitration Act 1996 relating to (i) the decision to exclude a statutory duty of independence; (ii) the proposal to amend the Act to establish a statutory duty of disclosure; and (iii) the suggested clarifications regarding the scope of arbitrators’ immunity in cases of resignation and removal.
- Arbitration Act 1996, s. 82(1) and s. 30(1)(a)-(c).
- Arbitration Act 1996, s. 30.
- Dallah Real Estate & Tourism Holding Co v. Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46, [2011] 1 AC 763.
- Film Finance Inc v Royal Bank of Scotland [2007] EWHC 195 (Comm), [2007] 1 Lloyd’s Rep 382.
In-depth 2023-228
