The role of national courts in arbitration
Arbitration is, by its nature, a process operating outside of national courts. It is a process in which parties can choose a neutral forum to have their disputes heard in a format that suits them. However, arbitration is not a totally free-standing system. So, why and at what points in an arbitration could and would a national court become involved? In this article we set out some of the different stages where the parties might find or want the courts involved.
On what basis do courts get involved?
Broadly speaking, the role of the courts is to support the arbitral process where support is necessary while respecting the bargain made by the parties in entering into an arbitration agreement in the first place and the decisions of the arbitral tribunal. The role of the courts should, therefore, at least in theory, be kept to a minimum. In practice, however, disputes (and the arbitrations that ensue from them) differ in nature, thereby giving rise to varying levels of court intervention in some circumstances.
The extent of the possible roles played by different national courts will also be determined by:
- The laws of the court’s jurisdiction. While there may be different approaches adopted, there is a considerable degree of harmony brought about by many countries having adopted, even if in differing degrees, the UNCITRAL Model Law on International Commercial Arbitration (variations of the UNCITRAL Model Law have been adopted in 122 jurisdictions in 89 states around the world) and having become signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (known as the New York Convention, to which there are currently 172 signatories).
- What the parties have agreed. Parties to an arbitration agreement may have “opted-in” to or “opted-out” of giving courts certain powers where those options are available in the relevant jurisdiction. For example, whereas many jurisdictions do not permit any appeal of arbitral awards on the merits, Hong Kong law allows parties to opt-in to appealing arbitral awards.
- Institutional rules in place. By agreeing to certain institutional rules, those rules may determine certain elements of potential court involvement. For example, article 35(6) of the International Chamber of Commerce Arbitration Rules 2021 states that by agreeing to those ICC rules the parties are giving up their right to challenge an arbitral award to the extent that it is possible to give up those rights.
When do courts get involved?
The answer to this question may be best illustrated by starting with a ‘best-case’ scenario under which court intervention is not (likely to be) necessary:
Something goes wrong. The parties look to their contract and find a clearly defined arbitration agreement in it. After some initial communication to narrow the issues, one party writes to the agreed arbitral institution to begin the arbitration and the other party engages. The witnesses needed to give evidence produce it and appear before the tribunal. The tribunal then makes an award, which the defendant (though begrudgingly) pays.
Even when a dispute does not follow this trajectory, many arbitral tribunals will have powers to assist in clarifying matters and bring parties into line. Nevertheless, there are times when some further support is needed from the courts.
As is suggested by the scenario above, it is often where a party or a third party is resisting the arbitral process that a court may be needed to give teeth to the process or the arbitral tribunal.
We now set out the most common scenarios for this involvement throughout the arbitral process.
Despite a valid arbitration agreement, a claim is started in a court
If that court is in a country that is a signatory to the New York Convention or that has adopted the UNCITRAL Model Law then it will have a duty, at the request of one of the parties, to refer to parties to arbitration. In practice, that will often mean staying the court proceedings.
Many courts can also grant anti-suit injunctions where the parties have chosen to seat the arbitration in that court’s jurisdiction and foreign proceedings have been brought. There is no need for the arbitration to have started, just for an arbitration agreement to exist.
There is a dispute around the arbitration agreement itself
Disputes over the interpretation of the arbitration agreement itself are often decided by arbitral tribunals, and indeed it is generally accepted that arbitral tribunals have jurisdiction to determine their own jurisdiction in the first instance (the principle of kompetenz-kompetenz). However, the courts can get involved in this decision in some instances. For example, Article 8(1) of the UNCITRAL Model Law provides that a court must refer any action brought before it that is the subject of an arbitration agreement to arbitration, but it contains an exception to this rule: a court need not do so if “it finds that the agreement is null and void, inoperative or incapable of being performed”. As discussed further below, an arbitral tribunal’s decision on the interpretation of an arbitration agreement will. At a later stage, be subject to set aside or annulment by a court.
Appointing the tribunal
Where difficulties arise in the process of appointment, challenge, or termination of the mandate of an arbitrator in an ad hoc arbitration (i.e., where the parties have not opted for the rules of an arbitral institution), the courts typically will have powers to provide assistance.
Under the UNCITRAL Model Law, if there is failure to agree on an arbitrator (by the parties or by two arbitrators appointing a third) or an arbitral institution fails to perform its role in the appointment process as it should, assistance from a court could be sought. The court would have regard to the qualifications required of the arbitrator by the agreement of the parties and look to secure the appointment of an independent and impartial arbitrator. In the case of a sole or third arbitrator the courts would also take into account the merits of appointing an arbitrator of a nationality other than those of the parties (which, again, looks to ensure that the court’s role is a neutral one).
Interim measures
The courts may also be able to assist in relation to granting or enforcing interim measures, for example, to preserve assets and evidence where there is a risk of interference with them. Such court orders can be needed before an arbitral tribunal has even been constituted or an arbitration begun, and there may not be time to constitute a tribunal (though many arbitral rules contain provisions on the appointment of emergency arbitrators). While these issues often arise at the outset of a dispute, there is scope for them to arise later (for example, a freezing order may be desirable once a final arbitral award has been made).
Under Article 17J of UNCITRAL Model Law a court will have the same power of issuing an interim measure in relation to arbitration proceedings as it has in relation to proceedings in courts. Furthermore, the courts are expected to exercise such power in consideration of the specific features of international arbitration.
Similarly, English law (under section 44 of the Arbitration Act 1996, a section which the parties may opt out of) gives the court wide powers to make orders for the preservation of assets and evidence for an arbitration. This includes the ability of the court to grant interim injunctions and appoint a receiver in support of an arbitration. The power is only available where the arbitral tribunal does not have such power itself or is unable to act in time.
As noted above, however, the rules of arbitral institutions increasingly contain provisions on emergency arbitrator procedures that can be considered and, in some circumstances, be a useful tool in these scenarios. In non-urgent cases the parties must either be agreed or the tribunal have given permission.
Enforcing peremptory orders
The courts typically can, if necessary, support an arbitration by way of making orders to require a party to comply with an arbitral tribunal’s peremptory orders. While a court should not go beyond what a tribunal has ordered, the court’s ability in this regard can strengthen the threat brought about by an order made by a tribunal. Breaching a court order can put a party in contempt of court, which very well may increase compliance.
Procuring witness evidence
An arbitral tribunal has no power to make orders against third parties. When it comes to compelling witnesses to give evidence, a national court may be able to step in and fill this gap. A court could ensure that a witness attends a hearing by summoning that witness and/or it can order the taking of a deposition (which can be particularly helpful if a desired witness is out of the jurisdiction).
Setting aside or annulling an arbitral award
Once an arbitral award is rendered, a party is able to look to the courts to set aside or annul such an award, albeit on limited grounds. To challenge an arbitral award, a party must act swiftly as strict time limits are often in place. For example, the UNCITRAL Model Law does not permit an application to set aside after three months from receiving the arbitral award (or from a correction or clarification to an award or from when an additional award has been made). Under English law, that time period is shortened to applications being made within 28 days from the date of the award or date the party was notified of the result of an appeal or review.
The grounds for the setting aside of an arbitral award by a court are typically limited to relatively narrow jurisdictional, procedural, or public-policy related ground, which generally reflect or adhere to the grounds set forth in Article 34 of the UNCITRAL Model Law, which include:
- that the arbitration award was not valid under the law to which the parties subjected it (or, if the parties did not indicate which law, the law of the country where the arbitral award was made),
- that a party was not given proper notice of the appointment of the arbitrator or the arbitration proceedings or could not present its case,
- that the award deals with a dispute not falling within the terms of the submission to arbitration (and if only part of the award does not fall within the terms of the submission, and that part is separable, then only that part is set aside), or
- that the court finds that the award is in conflict with the public policy of that country.
Enforcing an arbitral award
One of the most recited benefits of using arbitration over litigation is the way in which arbitral awards can be recognised and enforced in other countries that are signatories to the New York Convention. However, the recognition and enforcement of awards necessitates the involvement of the courts. If an award is recognised by the courts, then that arbitral award will typically be enforceable in the same way as a court judgment would be in that country. Under the New York Convention and most national arbitration laws, including those based on the UNCITRAL Model Law, the grounds for refusing to recognise or enforce an arbitral award are broadly similar to the narrow jurisdictional, procedural, and public-policy related grounds set out above for setting aside or annulling an arbitral award (which, in the context of enforcement, have their roots in Article V of the New York Convention).
While there is some varying interpretation of these grounds by different countries (particularly when it comes to public policy), the regime generally provides greater certainty than looking to enforce court judgments.
Conclusion
In conclusion, there is at times a very important role to be played by the national courts in arbitration. The role should though be limited to supporting the parties’ agreement to arbitrate and do so in a neutral forum.
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