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Is arbitration stifling the common law?

31 March 2016

Recent comments by the Lord Chief Justice of England & Wales have reignited a debate over the balance between finality in arbitration and consideration of important points of law by the Courts.

In England and other 'common law' jurisdictions, the law develops as much (or even more) through decided cases as through new or amended laws enacted by Parliament.  In broad terms, this contrasts with 'civil law' jurisdictions where the law is more or less codified and previously decided cases do not have the same status.

It seems logical then that the more judgments being delivered in a particular area of law (say, shipping or commodities) the faster that area of law will develop, and the converse will also be true.  Development of the law is important for many reasons, but particularly so in relation to commerce where new ways of doing business (indeed, entire new industries) may fall outside what was contemplated by statutes or cases just 20 or 30 years old. 

Enacting new legislation can be a long process, subject to the shifting interests of politicians, for whom the updating of commercial laws is unlikely to be a vote-winner.  Compare the 109-year gap between the Marine Insurance Act 1906 and the Insurance Act 2015 with the constant stream of new legislation relating to crime, human rights, constitutional issues, taxation, and so on.  While some matters require legislative action, the gap is for the most part filled by Judges developing the law one case at a time.

The argument made by the Lord Chief Justice and others is that changes introduced by the Arbitration Acts 1979 and 1996 swung the pendulum too far in favour of finality of awards and away from Court supervision of the legal outcome.  This was done primarily by restricting the number of appeals to be heard by the Courts.

As the debate continues, statistics will no doubt be produced showing the number of applications for leave to appeal, how they were decided, and how far they went through the Courts.  Indeed, I recall a speech given by Sir Bernard Eder last year in which such data were presented in relation to shipping cases, and it was surprising to see how few substantive appeals are heard each year.  This reflects the high threshold to be met before permission to appeal will be granted under section 69 of the 1996 Act, namely that:

  • the decision of the tribunal on the question is obviously wrong, or
  • the question is one of general public importance and the decision of the tribunal is at least open to serious doubt. 

It will be a rare case where the tribunal's decision is obviously wrong.  This means that in most cases an aggrieved party will need to identify a question of general public importance.  In the shipping sector, this will often rule out appeals on points of construction because most charterparties are an amalgam of some or all of the following:

  • a fixture recap setting out the key negotiated terms of the fixture,
  • an often outdated printed form with more or less common amendments,
  • a set of rider clauses amending and supplementing the printed terms,
  • the standard terms of one of the parties (perhaps a major trader), which may themselves be amended for the particular fixture, and
  • a swathe of BIMCO clauses dealing with current or past topical issues such as piracy, low-sulphur fuel, ISM/ISPS and the like.  

Whilst many sets of rider clauses and standard terms cover the same issues, they are rarely if ever identical.  Accordingly, persuading a Judge that the construction of a particular clause in a particular charterparty raises a question of general importance can be an uphill task.

More important, though, than mere numbers is the effect of such judgments on the development of the law, which is the Lord Chief Justice's concern.  Looked at in that light, I would suggest that (in the areas of law with which this blog is concerned) the quality and breadth of judgments produced on appeal from arbitration awards have in recent years had an effect that goes far beyond the limited number of cases which reach the Courts.

There are the headline cases which have an effect across the law of contract, not confined to their origins as shipping or commodities cases.  One only has to look at the long line of recent cases on various aspects of contractual damages: The GOLDEN VICTORY and Bunge v Nidera on post-termination events, The ACHILLEAS (as explained in The SYLVIA) on remoteness, The NEW FLAMENCO on mitigation, and The MTM HONG KONG and two appeals from arbitrations between Glorywealth and Flame addressing the compensatory principle.

And of course the market waits with bated breath for the Supreme Court's decision in The RES COGITANS.

In addition to this, the Courts have produced a steady stream of judgments on the more everyday aspects of (in particular) charterparty law, including:

  • The LIVANITA, The ARCHIMIDIS and The REBORN on unsafe ports,
  • The PEARL C and The OCEAN VIRGO on speed and consumption,
  • The GLOBAL SANTOSH, The SALDANHA and The ATHENA on off-hire,
  • The SILVER CONSTELLATION on RightShip approval,
  • The ZENOVIA and The GREAT CREATION on redelivery notices, and
  • The ASTRA on whether payment of hire is a condition. 

On the other hand, Mr John Schofield laments in the preface to the seventh edition of his book, Laytime and Demurrage, that:

            "In the preface to the fifth edition in 2005, I identified three areas of the law where I thought further judicial scrutiny would be of assistance.  Unfortunately more than 10 years on, there has been no significant judicial intervention in any of the areas I identified."

The current system, therefore, does leave gaps in certain areas.  Whether this is because such cases are by their nature less likely to meet the requirements of section 69, or because they tend to be of a lower value (particularly in an era of low freight rates), or for some other reason, is not clear.

The gaps are very often plugged (as the table of cases in Mr Schofield's book shows) by the anonymised summaries of London arbitration awards published in the Lloyd's Maritime Law Newsletter.  This is an invaluable resource for practitioners and their clients.  However, it has its limitations.  The summaries can be very brief, often (and perhaps inevitably) leading to a loss of detail as to the factual / contractual matrix, as well as in the submissions made and the tribunal's reasoning.  This can make it difficult to identify the similarities and differences between the reported case and the problem at hand.

The published awards also represent only a fraction of the awards issued each year.  According to the LMAA website, its members have issued on average around 550 awards annually over the past decade.  However, over the same period the number of awards reported in the LMLN has not exceeded 27 per year and is often far lower (just one in 2009).  Obviously not all awards are interesting enough to merit publication, but this statistic must also reflect the frequent exercise of the right of either party to veto a proposal that the award be published (even in an anonymised form).  I suggest that consideration should be given to amending the LMAA Terms to remove such veto and leave it to the arbitrator(s) to decide if an award should be published, or at least to require both parties to reject publication.

Where there is a lack of English authority, it is always possible to look to the rest of the common law world.  However, US law is by and large too 'different' to be of great assistance, and in many other jurisdictions a strict 'Model Law' approach is taken.  This is the case in Hong Kong and Singapore, where there is no equivalent of section 69 of the 1996 Act [FN1] and consequently no possibility of appeal on a point of law.  This leaves little if any local jurisprudence in relation to charterparties in particular.

In those jurisdictions, the pendulum has clearly swung almost as far as it can against Court intervention, save in very restricted circumstances such as a lack of jurisdiction or inability of one party to present its case.  The remedies available in England under section 69 (and section 68) of the 1996 Act seem generous by comparison.

Making it easier to appeal against awards might well aid the development of the common law, but at what price?  Arbitration can already be as expensive as litigation, sometimes even more so given the need to pay the arbitrators' fees.  The prospect of more frequent trips to Court (and additional time and expense) in cases which do not satisfy the current section 69 criteria might well encourage parties to consider Model Law jurisdictions.  While London remains pre-eminent in shipping and commodity arbitrations, other centres (in particular Hong Kong and Singapore) are increasingly busy and are actively promoting themselves as alternatives.

While I understand the concerns which have been raised, and agree that this is a point which should be kept under review, I would suggest that the balance struck in England remains for the time being about right.


[FN1]  Save for an 'opt-in' provision in the Hong Kong Arbitration Ordinance (Cap. 609)