Two themes in arbitration cases before the English courts: state parties and the nature and extent of the court’s pro-arbitration approach

Stewarts on some recent developments in arbitration in the UK

Claims relating to arbitration make up a significant portion of the English Commercial Court’s case list. Arbitration is by its nature international and London’s enduring status as a global hub for international arbitration reflects its position as a destination for international parties to resolve their disputes. Recent cases before the English courts which this article addresses corroborate that fact. They arose in the context of important world events. Several high-profile cases involved states. Also last year, the Law Commission published its recommendations as to how the Arbitration Act 1996 (the Act), the arbitration law of England, Wales and Northern Ireland, should be modernised. The new legislation is expected to be enacted by the end of 2024.

This article considers two themes which these developments bring into focus:

the nature and extent of the support the English courts will provide to arbitrations; and
the continuing evolution of issues in cases involving states and how some special concerns may apply to them.

Support of arbitration

The English courts have a reputation for a ‘pro-arbitration’ approach. However, what that means in any given case will vary depending on the context. What the court might consider is the appropriate course can for instance differ depending on the stage of the arbitration. Once an arbitration is on its feet, or once it has progressed such that an arbitral award has been rendered, the nature and extent of the court’s involvement may be different to if it has not yet started. Some cases from last year, and the proposals of the Law Commission, shed some light on this.

Before arbitration

Two key scenarios which the court may face before arbitration has been commenced are where a dispute said to be subject to an arbitration agreement has been commenced in proceedings before the English, or a foreign, court. If ‘competing’ litigation proceedings have been commenced before a foreign court, a party to the alleged arbitration agreement may seek anti-suit injunctive relief from the English court to restrain the other party from pursuing the litigation. If those competing proceedings have been commenced before the English court, a party may ask the court to stay those proceedings in favour of a referral to arbitration. The court had to consider both scenarios in recent high-profile cases.

Once an arbitration is on its feet, or once it has progressed such that an arbitral award has been rendered, the nature and extent of the court’s involvement may be different to if it has not yet started

In a series of cases (two of which went to the Court of Appeal: Deutsche Bank AG v RusChemAlliance LLC [2023] EWCA Civ 1144; and Unicredit Bank GmbH v RusChemAlliance LLC [2024] EWCA Civ 64), the court was asked to grant anti-suit relief to restrain competing litigation commenced in Russia. The contract in each case was governed by English law and included a disputes clause providing for ICC arbitration, but seated in Paris. In each case, the Russian counterparty commenced litigation in Russia, and the other party then applied to the English court for anti-suit relief to restrain the Russian counterparty from pursuing the Russian court proceedings.

As the seat specified under the arbitration agreement was Paris, not London, the Act was not triggered. This provided an unusual question for the English court. Normally when a party seeks anti-suit relief from the English court it is because it is the court of the seat and has supervisory jurisdiction by virtue of the Act over the arbitration agreement (and so any arbitration (to be) commenced pursuant to it). In this case, it was not; the French courts were.

Despite that novelty, the court granted the relief sought. Although it appeared to be accepted that the French courts would not have granted anti-suit relief if it had been requested from them, they would recognise such relief, and the fact the French courts could not do so was a reason the English court should. The court referred to ‘the policy of English law that parties to contracts should adhere to them, and in particular the parties to an arbitration agreement’. And it considered that although in theory the relief might be available from a tribunal constituted in the relevant arbitration, there would be delay in obtaining it, it would not be enforceable in Russia (whose courts had already found the arbitration agreement unenforceable), and further, without the English court granting relief, there would be nothing preventing the Russian party seeking an injunction from the Russian courts restraining the arbitration. The court therefore proceeded to grant relief. One of the cases has been appealed to the Supreme Court for hearing in 2024.

While those decisions might be said to show an example of the English court’s ‘pro-arbitration’ approach, the court is nonetheless analytically careful in exercising its powers. In Republic of Mozambique v Privinvest Shipbuilding SAL (Holding) & Ors [2023] UKSC 32 the UK Supreme Court was willing to carefully work through a series of related contracts involving various parties to identify matters that should be arbitrated and those that could be litigated.

If competing litigation proceedings have been commenced before the English court, a party may ask it to stay those proceedings in favour of a referral to arbitration.

A party to litigation before the English courts alleged that matters in respect of which the litigation was brought fell within the scope of arbitration agreements and so ought to be stayed and referred to arbitration under s9 of the Act.

The claims alleged bribery and conspiracy to injure the claimant state arising in relation to contracts for the supply of assets and services (which contained arbitration agreements), credit lines extended in respect of that supply (which did not) and guarantees in respect of the same (which also did not). The claims in question arguably straddled the differing jurisdictional clauses within the suite of agreements.

To determine whether there were matters which fell within the scope of the arbitration agreements, the court had to first identify what those ‘matters’ were. It determined a matter was a ‘substantial issue’ that is ‘legally relevant’ and ‘an essential element of the claim or… a relevant defence’. Judicial evaluation had to be applied to work out whether an issue raised in the claims satisfied these requirements.

The court analysed the legal investigation and steps necessary to determine the claims, and found the matters they raised would not fall within the scope of the arbitration agreements within the supply contracts and so refused a stay and allowed the court proceedings to continue.

During arbitration

When and to what extent the English court can intervene to support an ongoing arbitration is regulated by the Act and a key source of its powers is in s44. Broadly, the court’s support requires a balancing of the need for the court to exercise its powers without straying into matters the arbitral tribunal can (and should) determine according to the parties’ agreement.

An example of this was in JOL and JWL v JPM [2023] EWHC 2486 (Comm), where a party applied to the court under s44(3) for urgent injunctive relief for the redelivery of two vessels under agreements which it had a contractual entitlement to terminate with ‘immediate effect’ under circumstances which it was common ground between the parties had arisen. Despite the immediate nature of the contractual right (and the alleged risk of the possible deterioration of the vessels pending relief), the court did not consider the circumstances gave rise to urgency (a necessary requirement for it to exercise its power) such that it should leave the matter for the arbitral tribunal (once constituted). The court considered that the decision it would make on the matter would be ‘final’, thus effectively taking the decision out of the hands of the arbitral tribunal, contrary to the parties’ agreement to arbitrate. But the court did not rule out that it might rule on the matter in future if the tribunal considered it could not grant the relief sought in a suitable timeframe and permitted the party to approach the court.

Legislative reform

The extent of the court’s powers in support of ongoing arbitral proceedings was considered by the Law Commission when it reported its recommendations for updating the Act. One of the updates it recommended concerns the court’s powers to make orders against non-parties to an arbitration. Because it is by its nature a contractual and consensual process, the binding nature of arbitration and the powers of arbitral tribunals over a third party is limited. This can be a perceived limitation by comparison to litigation before a court which may have further reaching powers. The Law Commission has suggested that new legislation confirm that the court’s powers to make such orders in support of arbitration be available against third parties. While the court had iteratively expanded its powers to third parties, third-party orders previously not granted by the court included a freezing order to enforce an award against subsidiaries and an order for the taking of evidence from a non-party. So the Law Commission’s recommendation could have a significant impact.

After an award

Two grounds on which an arbitral award can be challenged are a lack of the tribunal’s substantive jurisdiction (s67) and in the event of a serious irregularity affecting the tribunal, the proceedings, or the award (s68).

The court takes a different approach to each type of case. In s67 proceedings, a full rehearing of the relevant issues before the court typically takes place. However, the Law Commission has recommended a change in this approach, whereby a full rehearing of all issues is replaced with a more focused approach: the challenge will be limited to the grounds of objection and supporting evidence on which it was brought before the tribunal, save certain limited circumstances, and that evidence will not be reheard save in the interests of justice. It seeks to limit those matters which can be put before the court.

Enforcement cases involving states posed particular questions for the court in the last year, and it seems likely they will continue to do so in the near future.

In s68 proceedings, the reconsideration of evidence is far narrower and the courts typically apply high thresholds, historically success rates have been low, and such challenges can be dismissed on the papers. However, in a recent high-profile case regarding awards valued at $11bn including interest against the Federal Republic of Nigeria (Nigeria v P&ID [2023] EWHC 2638 (Comm)), the court upheld a challenge to the award on the basis of it being ‘obtained by fraud or the award or the way in which it was procured being contrary to public policy’. The court found that during the arbitration, a witness had not mentioned that bribes had been paid to officials when the relevant contract had been entered into, and that they had continued to be paid during the arbitration. It also found that the ‘successful’ party had received and improperly retained Nigeria’s internal legal documents during the arbitration. It found the awards had been obtained ‘only after and by practising the most severe abuses of the arbitral process’.

Special concerns regarding states

Enforcement cases involving states posed particular questions for the court in the last year, and it seems likely they will continue to do so in the near future.

Cases involving the attempted enforcement of awards obtained from arbitrations constituted under intra-EU bilateral and multilateral investment treaties have been high-profile in recent years following the Achmea and Komstroy decisions of the Court of Justice of the European Union (CJEU), which broadly found that arbitration agreements in such treaties were contrary to EU law and so not enforceable. With the UK’s withdrawal from the EU, the question of to what extent such EU law findings bind the English courts has often arisen, with defendant EU states arguing against the enforcement of awards in this context.

Recent cases have focused on questions of sovereign immunity and whether states have waived immunity from enforcement.

The UK Supreme Court’s decision in Micula and the CJEU’s recent finding that the UK infringed EU law in allowing enforcement in that case will continue to fuel the question. However, recent cases have focused the issue more on questions of sovereign immunity and whether states (including EU states) have waived such immunity from enforcement by entering into such treaties (and, if not, whether that prevents enforcement against them within the English jurisdiction). In a key case, Infrastructure Services Luxembourg S.A.R v Kingdom of Spain [2023] EWHC 1226 (Comm), the court was unwilling to accept a submission that Spain had not waived sovereign immunity by acceding to the International Centre for Settlement of Investment Disputes (ICSID) convention in so far as it applied to intra-EU disputes. This was despite the court noting the ‘juridical dilemma’ in which Spain found itself following the CJEU decisions which, in effect, voided the arbitration agreements under EU law, which imposed on it inconsistent obligations under the relevant intra-EU treaties and under the ICSID convention.

In contrast, in Border Timbers Ltd and Hangani Development Co. Ltd v Republic of Zimbabwe [2024] EWHC 58 (Comm), the court took what might be seen as the beginnings of a different approach. It considered Zimbabwe’s accession to the ICSID convention alone might not be sufficient to trigger two exceptions to sovereign immunity recognised under the UK State Immunity Act 1979. Although the scope of that judgment must carefully be understood, it appears to pave a different path to Infrastructure Services. An appeal of that Spain judgment is awaited, and may address the decisions together to clarify the position.

The status of cases referred to in this article is up to date as of March 2024.