Arbitration. Solving disputes the arbitration way

Procedural improvements in the Arbitration Act mean it is better than ever to use London, reports Stewart Shackleton. Stewart Shackleton is senior associate of the arbitration group at Norton Rose in London and Paris. There has been much discussion at various academic conferences on the subject of the new Arbitration Act which came into force on 31 January this year.

Learned authorities have debated theories of “Kompetenz-Kompetenz”, “severability”, “amiable composition” and “party autonomy”.

But what do the changes introduced by the new law really mean in concrete terms? What are some of the practical consequences for everyday practice? What new aspects should lawyers consider when drafting arbitration clauses for international arbitration to take place in London or when embarking on arbitral proceedings under the new law?

While the Act is a codification of English arbitration law, it is also intended to encourage a definite change in practice.

There has been a tendency for English solicitors and barristers to conduct arbitration as much as possible as court proceedings. This practice means that many of the comparative advantages of arbitration have been lost.

The most obvious practical consequence of the Act is that arbitration is likely to be made more flexible, quicker, less complicated and more cost-effective than litigation.

Lawyers should now, as a result, advise clients involved in international transactions to provide for dispute resolution through arbitration.

The Act now positively encourages the parties not to follow English rules of court procedure.

Arbitrators under the new Act are not obliged to apply English rules of evidence. Practitioners must therefore bear in mind that English rules such as hearsay, discovery, parole evidence, and rules excluding evidence of pre contractual negotiations are no longer necessarily applicable in arbitral procedure, especially in an international arbitration.

International parties now have a larger choice of applicable substantive rules. Should their contract be governed by the law of a given State? Is it appropriate in the circumstances of the transaction to ask the arbitrators to decide in equity, or to follow rules of law which both parties are more familiar with and which are more adequate than the domestic law of either party?

The parties may choose general principles of international trade law. For example, the Vienna Convention on the Sale of Goods, lex mercatoria, or Unidroit Principles for International Commercial Contracts.

Parties involved in an arbitration in England now have more power than ever before to shape arbitral proceedings. In the interest of economy and expediency, parties will be able to adapt procedure to the specific nature of their dispute and to their own legal, cultural and linguistic backgrounds.

Lawyers should advise parties to take full advantage of such freedom, especially if clients want to reduce costs. Parties are free either to specifically include provisions with respect to aspects of procedure they consider useful and definitely wish to follow, or to exclude or limit procedures they deem unnecessary in a given transaction. They may also exclude the application of undesirable features of the Act itself, large parts of which are not mandatory.

It is naturally easier and more cost-effective for parties to settle some of the more fundamental procedural questions in the arbitration clause before a dispute arises, but they may also agree on such matters during preliminary meetings with the arbitral tribunal.

In addition to choosing the place and the language of arbitration as well as the number of arbitrators and their manner of appointment, parties may wish to consider a broader range of questions.

Parties can and should make clear what qualifications or attributes they require in their arbitrators, such as legal or technical skills, language, experience, or even neutral nationality.

It is important to remember that under the Act an arbitral tribunal enjoys extensive powers over procedure unless the parties agree otherwise. Some of these powers will come as a surprise to English practitioners. For example, unless the parties agree to the contrary, the arbitrator may place a cap on recoverable costs, award compound interest, appoint independent tribunal experts or conduct proceedings in an inquisitorial manner.

If the parties do not incorporate the procedural rules of a given state, rules devised by Uncitral or those of an arbitral institution such as the London Court of International Arbitration (LCIA) or the International Chamber of Commerce (ICC), the default provisions of the Act will apply.

Significant procedural improvements in the Act mean that parties can be advised that it is now both easier and safer than ever before to conduct ad hoc proceedings in London if they want to avoid the administrative costs of arbitral institutions.

Parties will still be well advised to provide for an experienced appointing authority, such as the president of a recognised arbitral institution, to make any necessary default appointments.

The Arbitration Act stops just short of some of the objectives of the Uncitral Model Law. In order to ensure the lowest possible risk of court involvement during and after proceedings, it is a good idea to expressly exclude any recourse to the courts for preliminary questions of law under Article 45, and for appeals on questions of law under Article 69.

Appeals to the court on questions of law will be automatically excluded where the parties agree to dispense with the reasons for an arbitral tribunal's award, or where the parties have chosen, as governing law, rules of law other than English law.

Parties may also agree to exclude the power of the court to extend any time limits fixed for the commencement of arbitral proceedings.