English law took ‘a wrong turning’ in favouring the use of international arbitration to resolve commercial disputes, the lord chief justice of England and Wales said in a lecture earlier this month.
Lord Thomas said ‘the time is right to look again at the balance’ between disputes heard in private international arbitrations compared to public court proceedings, arguing that the rise of international arbitration is ‘a serious impediment to the development of the common law’.
He detailed several options, some of which will worry City arbitration practitioners reliant on the system’s independence from the local court system for its competitiveness against early pioneer Paris, to prevent the behind closed doors disputes systems from ‘retarding public understanding of the law, and public debate over its application’.
Fearing that the growth of arbitration has ‘undermined’ the development of English law, particularly in the construction, engineering, shipping, insurance and commodities industries where corporates have shifted from litigation to arbitration as a means of resolving disputes, Lord Thomas said ‘there is a real concern…at the lack of case law on standard form contracts and on changes in commercial practice’.
He floated reforming the appeals process, which arbitration lawyers have long argued would lengthen arbitral procedures and deter users of the system from using London as the seat, as a means of resolving the problem.
Lord Thomas argued that undoing decades of legislative developments to restrict the English courts from interfering in private arbitration proceedings had damaged the system and backed a ‘more flexible test for permission to appeal’. He said that would ‘enable the courts more readily to develop the law whilst leaving arbitration as an important means of dispute resolution’.
Other options, he noted, would be to attract more disputes back to the courts by becoming faster and cheaper or by encourage greater use of a rule (section 45 of the Arbitration Act 1996) that enables courts to step into arbitration proceedings to give decisions on points of law before an arbitration tribunal gives an award. This rule is rarely used at present.
He concluded: ‘In retrospect the UK went too far in 1979 and again in 1996 in favouring the perceived advantages for arbitration as a means of dispute resolution in London over the development of the common law; the time is right to look again at the balance.
‘There is also a need to examine whether other markets would be prepared to follow the financial markets, to waive arbitration in cases where there were significant points of general interest and to appreciate that not only would their own dispute, in the right case involving legal issues, be better determined in a court but, more importantly, the wider interests of their industry and of the common law in general would be much better served by more issues being resolved in court and the law thus developed and clarified,’ he said.