Arbitration – Arbitrators’ own legal advisers and other procedural issues
With the current delays experienced in the Court Service, a huge increase in Court fees and more procedural hurdles to climb, litigants are turning to Arbitration to resolve disputes. However, to ensure that Arbitration is a quick and cost effective way of resolving disputes, it must be properly navigated.
Arbitrators are finding they have to deal with a wide spectrum of disputes. Where the parties have a written contract, it is usual to find a dispute resolution clause which refers to Arbitration. Consequently, Arbitrations are cited in Farm Business Tenancies, share farming agreements and some supply chain contracts.
Arbitration is conducted under the Arbitration Act 1996 (the 1996 Act). The Courts are unwilling to interfere in the way in which Arbitrators conduct their Arbitrations. Section 33 of the 1996 Act gives Arbitrators wide case management powers. If, during the course of an Arbitration, an Arbitrator takes steps which one party does not consider to be just or appropriate, to be able to appeal that decision, the applicant must be able to show that an award was made which was either wrong on a point of law or that there was a serious irregularity which caused or will cause substantial injustice (Sections 69 and 68 respectively).
When the 1996 Act was introduced, replacing the Arbitration Act 1950, the policy was to reduce the extent of intermeddling by the Courts in Arbitrations. Section 68 was designed to act as an exceptional remedy or “a longstop, only available in extreme cases where the Tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected.” Section 68 therefore establishes a very high threshold which must be crossed.
Arbitrators are now being appointed for a whole host of complex cases, often involving legal issues with the parties instructing solicitors or barristers to represent them. The position for the Arbitrator can be a daunting one and often the first question that an Arbitrator will need to decide is jurisdiction.
The question the Arbitrator will need to consider is what is he actually being asked to decide. More importantly, does he have jurisdiction to decide that question?
Under Section 30 of the 1996 Act an Arbitrator may rule on his own jurisdiction. What I mean by that is the Arbitrator will need to decide what matters have been submitted to him for resolution. One party may raise an issue as to whether a particular aspect of the case falls for the Arbitrator to decide under his current appointment.
If such an issue is raised, it is important both for the parties and for the Arbitrator to be clear on what happens next. The parties have a choice. One option is that they can reach agreement about who decides jurisdiction. They can, for example, decide that the jurisdictional issue is referred to the Court. Section 32 of the 1996 Act specifically allows this.
However, if they don’t reach any agreement on who will determine jurisdiction then an Arbitrator may proceed to rule on his own jurisdiction.
It could be that the parties debate long and hard as to where the jurisdictional issue is decided and they do not reach an agreement. The Arbitrator is free to proceed to make his own determination. That decision could be appealed but only under Section 68 (serious irregularity) or 69 (on a point of law where there is either the agreement of the parties or the leave of the Court to launch such an appeal).
Therefore, if the parties have not agreed a procedure to deal with jurisdiction then the Arbitrator is free to determine it provided he adopts a fair procedure to resolve that issue.
The Arbitrator, for example, needs to have in his mind the duties set out in Section 33 of the 1996 Act which are worthy of repetition. Section 33(1)(a) states that the Arbitrator shall “act fairly and impartially as between the parties giving each party a reasonable opportunity of putting his case and dealing with that of his opponent...”
Agreement of the parties
There is one additional point which is worthy of mention. The 1996 Act is littered with references to the phrase ‘unless otherwise agreed by the parties’. The underlining theme is that the parties are generally free to agree a process and if they cannot agree then the 1996 Act steps in.
There is however an important provision to that which will only get scrutinised when it is too late. Section 5 of the 1996 Act refers to the required agreement between the parties as being effective only if it is in writing.
It only fulfils that criteria if there is:
- there is an agreement in writing (it can be signed or unsigned by the parties)
- an exchange of letters or emails making that agreement
- an agreement evidenced in writing in some other way
It is important therefore that where a principle under the 1996 Act applies ‘unless otherwise agreed by the parties’, the parties need to be able to point to a clear written agreement in relation to a particular matter. Conduct or a course of dealing will not be sufficient nor indeed, silence on the part of one party.
Having got through any issues on jurisdiction, the Arbitrator will then need to adopt a set of procedures to resolve the dispute which are both fair and avoid unnecessary delay or expense.
Where a case is particularly complex, an Arbitrator is likely to ask the parties to attend a directions hearing where they will discuss the issues that are likely to be raised.
If a case is particularly complex then an Arbitrator will have at the front of his mind the question of whether he will need to appoint a legal adviser or assessor at any stage. It is something that the Arbitrator will usually discuss with the parties at that directions hearing.
It is important that the discussion concerning a legal adviser covers:
- the identity of the proposed adviser
- the estimated costs (or how to obtain those estimates)
- what the adviser will be asked to advise upon
- when the adviser will be asked to advise
- the procedure for instructing the adviser
The relevant part of the 1996 Act is Section 37. It is such an important provision that it is worth setting out the wording in full.
- “1) unless otherwise agreed by the parties
- (a) The [arbitrator] may –
- (i) Appoint experts or legal advisers to report to it and the parties, or
- (ii) Appoint assessors to assist it on technical matters, and may allow any such expert, legal adviser or assessor to attend the proceedings; and
- (a) The [arbitrator] may –
- (b) The parties may be given a reasonable opportunity to comment on any information, opinion or advice offered by any such person.
- 2) The fees and expenses of an expert, legal adviser or assessor appointed by the [arbitrator] for which the [Arbitrator is] liable are expenses of the [Arbitrator] for the purposes of this Part [of the Act]”
There are some important points to draw from that. First, unless the parties agree otherwise in writing, an Arbitrator can appoint a legal adviser and that can be whoever they choose, at whatever price they choose.
The Arbitrator can appoint the legal adviser and ask him to give advice without giving any information to the parties. The parties must meet the fees of that legal adviser.
Section 37 therefore means that an Arbitrator can proceed to appoint a legal adviser unless the parties agree otherwise in writing. The parties could therefore agree that either:
- there should be no legal adviser at all, or
- they could agree some limitations or restriction to points in the five bullet points above
It is important that those restrictions and the parties’ agreement are properly recorded in the Order for directions that is made by the Arbitrator following the telephone hearing.
Although the Arbitrator has wide powers under Section 37 he will of course have an eye to the duties under Section 33 of the 1996 Act being the duty to “act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent”. That duty has been reflected in the way in which the Arbitrator instructs the legal adviser. Although this is not set out in the statute, it is clearly best practice to:
- circulate the draft instructions to the parties for comment. That should include all relevant background information and a clear set of questions that the adviser is being asked to consider.
- detail the documents which are being sent to the legal adviser
Directions to legal adviser
Best practice dictates that all parties should be clear about the extent of the instructions to the legal adviser and understand the estimate of costs that has been provided by the adviser to the Arbitrator. The engagement of a legal adviser should not be a general brief to consider all of the issues in the Arbitration.
It should not go off at a tangent and result in advice that nobody wanted. In the words of one leading textbook, “great care should be taken in drawing up the expert or legal advisers’ terms of reference, and the [arbitrator] should take care to avoid the impression that the case is to be decided on the basis of advice given privately by the [arbitrator’s] own expert or legal adviser or, worse, that it is to be decided by the expert or legal adviser himself.”
Taking the time to ensure that the legal adviser is properly instructed will involve delay and cost but it is critical that the parties address the points raised at paragraphs 1 – 5 above prior to the legal adviser being appointed. Once any advice has been circulated, on which the parties should have an opportunity to comment under Section 37, the party in whose favour the advice falls is less likely to co-operate with the less fortunate party, if it is felt that one party has not had an opportunity to put their case.
The lesson to learn is that if one party disagrees with the appointment of a legal adviser, they must raise that with the other party as soon as possible. If the other party agrees that there is no requirement for additional legal cost then the Arbitrator cannot make an appointment. However, if the parties are unable to reach an agreement, perhaps because only one of them objects to the appointment or wishes to limit the scope of the appointment in some way, then the Arbitrator is free to press on with his appointment.
The parties to an Arbitration still have the possibility under Section 45 of applying to the Court to determine a preliminary point of law. However, parties tend to be cautious about court proceedings for the very reasons cited at the start of this article. The appointment of a legal adviser will be a quicker process, but it is important that all parties enter into that process knowing the potential procedural difficulties.