London is a leading centre for arbitration and international organisations often decide to have their disputes decided following the procedural law enacted by The Arbitration Act 1996 (the Act), which has been in force since 31 January 1997. Trett Consulting’s Richard Swan considers a significant issue which too often arises in the arbitration process, namely whether the arbitrator actually has authority, or jurisdiction, to hear and make an award relating to a dispute.

This is the first in a two-part article and covers the following issues:

. The basis of the arbitrator's fundamental statutory duty
. The source of the arbitrator's jurisdiction
. The arbitrator ruling on his own jurisdiction

The second part of the article will appear in the next issue of the Trett Digest and will cover the following issues:

. Restrictions on challenges made to an arbitrators ruling on substantive jurisdiction
. Rulings of the court and restrictions upon the court's jurisdiction
. Further challenges to substantive jurisdiction Background

Many reviewers of the Act have expressed great enthusiasm that it was “written in clear English, that it would be a great step forward in the administration and running of arbitrations for the benefit of the parties.”1. No more important in achieving this aim is the arbitrator's fundamental statutory duty under s.33(1) 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, and adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.”

The latter requirement is particularly relevant to the jurisdiction of the arbitrator, as we should expect the arbitrator to be provided with the appropriate tools in order to be able to perform his duty. Without appropriate jurisdiction and powers being given to the arbitrator, the arbitration process remains open to hijacking or frustration by recalcitrant parties and/or their advisors, thus falling foul of the requirement to “avoid unnecessary delay or expense”. One can hardly criticise an arbitrator for delay, unnecessary expense and allegations of incompetence if the arbitrator does not have an adequate mechanism with which to control proceedings.

An arbitrator is appointed in one of two ways; either through nomination by the parties as a result of an arbitration agreement between them, or by being appointed by an organisation to which the parties have agreed under the arbitration
agreement.

Source of the Arbitrator's Jurisdiction

The applicable jurisdiction of the arbitrator is likely to be determined in two ways; either under provisions of the Act, or by Arbitration rules.

Considering the Act first; this applies to arbitration proceedings provided that the arbitration agreement between the parties is submitted in writing. The conditions for establishing that the agreement is in writing are wide, as evidenced by s.5, and even include the possibility that there is only a written allegation by a single party of an agreement in writing which is not denied by the other party (see s.5(5)). Once the Act is confirmed as the applicable statute, the appropriate powers and duties are conferred on the arbitrator.

Whilst the Act provides the statute to be applied by the arbitrator, many parties choose to be governed by rules established by a particular institution, which may or may not be the rules of the appointing body. This is governed under s.4(3) which permits:

'..parties may make such arrangements by agreeing to the application of institutional rules or providing any other means by which a matter may be decided.'

Indeed, the Chartered Institute of Arbitrators has produced several sets of rules, applicable to different types of arbitration (e.g. commercial, insurance and holiday disputes) and the Institution of Civil Engineers has established a set of rules applicable to the construction and engineering industry. It is also possible for private companies providing arbitration services to present their own rules on appointment of an arbitrator.

The purpose of such rules is to provide a greater degree of certainty to the arbitration procedure and to allow a bespoke nature to the arbitration, depending on the type of arbitration required. One may expect the detailed procedural issues to be considered by the arbitrator to be different when considering a shipping dispute compared with a financial services dispute or a construction dispute. It is also common that institutional rules contain provisions in far greater detail than those provided for in the Act. This stems from s.34(1) of the Act which directs that:

'It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter.'

1 “After the 1996 Act: Arbitration in Practice” - David Cornes, Winward Fearon

 

Furthermore, s.34(2) steers both the arbitrator and the parties as to what needs to be considered, although this should not be taken to be exclusive, as the parties are free to agree procedural and evidential matters.

Arbitrators ruling on their own substantive Jurisdiction

One of the principle changes made in the Act over previous legislation is the power given to the arbitrator to rule on the extent of his own jurisdiction (s.30). This has been included because, under previous legislation, a party who wished to challenge the jurisdiction of an arbitrator had to apply to the Court for a declaration restraining him from proceeding with the reference; this clearly caused delay and unnecessary expense and was often considered an absurd procedure, as a challenge on the weakest of grounds could result in a stay of proceedings until another authority made a decision on jurisdiction. Whilst many experienced arbitrators did manage to find appropriate methods of dealing with this scenario, this statutory provision has been welcomed.

However, a word of caution still applies. S.30 does still allow the parties to agree to deprive the arbitrator of the power to rule on his own jurisdiction, but it is considered that this is unlikely to arise, as it will usually be in the interests of one or other party to have jurisdictional points dealt with by the arbitrator. In the event that this deprivation is agreed by the parties, any dispute over the arbitrator's jurisdiction would have to be dealt with by the courts. This clearly adds delay and unnecessary expense to the proceedings, whilst also reverting back to the legislative position before the enactment of the Act.

Matters on which an arbitrator may rule

Unless otherwise agreed by the parties, the arbitral tribunal, under

s.30(1) of the Act, may rule on its own substantive jurisdiction as to:

. whether there is a valid arbitration agreement or not (s.30(1)(a))
. whether the tribunal is properly constituted (s.30(1)(b))
. what matters have been submitted to arbitration in accordance with the arbitration agreement (s.30(1)(c))

Taking each in turn - is there a valid arbitration agreement? Firstly, prior to the Act, if there was no valid arbitration agreement, there could be no arbitration and no arbitrator. Thus the person purporting to decide that there was no valid arbitration agreement was not an arbitrator and, therefore, he could not make this decision. The matter at hand had to be dealt with by the court, its jurisdiction being derived from
statute, not from an arbitration agreement. Now, under s.30(1)(a) of the Act, the arbitrator's authority to decide whether he has jurisdiction is also derived from statute, i.e. the Act itself.

Second, is the tribunal properly constituted? If the arbitration agreement, although valid, is inoperative or incapable of being performed, no tribunal formed pursuant to that agreement has been properly constituted. Reasons for this include:

(1) It could be that there is no dispute in existence at the time of the arbitration notice, in which case the referral to arbitration is premature -see Cruden Construction Ltd v Commission for the New Towns (1994). It is also possible under some forms of contract that arbitration is not able to commence until practical completion or until other conditions have been satisfied, as is common in early forms of JCT contract and ICE Conditions of Contract.

(2) A referral to arbitration may be invalid if the dispute falls outside the terms of the arbitration clause. For example, some clauses only cover disputes which arise 'under' the contract, whereas others may include disputes which arise 'in connection with' the contract or even cover all disputes arising during the contract irrespective of what they are or how they arose. Well known case precedence is

Ashville Investments Ltd v Elmer Contractors Ltd [1988], in which it was held that a clause empowering an arbitrator to decide disputes arising 'in connection with' the contract gave him jurisdiction to decide disputes about mistake,
misrepresentation, negligent misstatement and rectification of the contract. See also Wealands v CLC Contractors Ltd (1999).

(3) A tribunal may not be properly constituted if there are errors in procedure. Examples include where an organisation has made the appointment but where that organisation is different from the organisation specified in the arbitration agreement. Likewise, an organisation may make an appointment which does not follow the procedures specified in the arbitration agreement (See MJ Gleeson Group Plc v Wyatt of Snetterton Ltd (1994)) or, indeed, an arbitrator may be appointed without the necessary qualifications as agreed by the parties, e.g. an accountant being appointed when the parties agreed it would be a quantity surveyor. Third, do the matters in issue fall within the arbitration agreement? The arbitrator is empowered to determine whether the matters in dispute submitted to him fall within the relevant arbitration agreement. For example:

. whether the claims are outside the scope of the agreement, e.g. are claims in tort being brought under an agreement that relates only to breaches of contract? An example of where there was disagreement over the scope of the reference can be found in Mid-Glamorgan County Council v Land Authority for Wales (1990).
 

. whether a counterclaim or any amendment of pleadings raise matters outside the arbitration agreement. In this instance, matters can be enlarged during the proceedings but only upon the agreement of the parties and the arbitrator.

Timing of the ruling on Jurisdiction

Assuming that the parties do not deprive the arbitrator of the power to rule on his own jurisdiction, the arbitrator will rule in one of two ways; firstly, in an award as to jurisdiction, or secondly, in his award on the merits (i.e. one which deals with the substantive issues of the case). Whichever course of action the arbitrator takes, he will always be mindful of his general duty under

s.33 to adopt procedures which avoid delay and unnecessary expense. If the arbitrator rules that he has jurisdiction, the case can proceed normally. If the arbitrator, in his award as to jurisdiction, rules that he has no jurisdiction, everything the arbitrator purports to do in that arbitration (other than rule under

s.30 that he has no jurisdiction) is a nullity because he is not the arbitrator. Therefore, the sooner the parties know that he does not have jurisdiction, and is, therefore not able to act as arbitrator on the substantive issues, the less money they will waste preparing to present their case before someone who has no power to hear them.
 
As a consequence, it is usual for an
arbitrator to make his ruling in 'an award as to jurisdiction' as soon as possible after hearing legal submissions from each side. Note also that if the arbitrator rules that he does not have jurisdiction on the matter, he is unable to make an award on the merits as he will not be able to make an award on the substantive
issues referred to him - see L G Caltex Gas Co Ltd v China National Petroleum Corp [2001].

Sometimes, however, a decision as to whether the arbitration agreement does or does not apply to the case before the arbitrator may depend upon facts that are in dispute between the parties. If so, or if the arbitrator thinks that the issue of jurisdiction is merely one of the respondent's delaying tactics, it is preferable for the issue of jurisdiction to be left over until the final award.

Summary and looking forward

The purpose of permitting the arbitrator to rule upon his own jurisdiction is foremost to permit the arbitrator to abide by his fundamental statutory duty i.e. that of acting fairly and impartially and with a degree of control in avoiding unnecessary delay and expense. The Act, therefore, provides those powers and duties and these can be expanded on by the provision of institutional rules. Coupled with this, the arbitrator has extensive powers to rule upon his own jurisdiction under Clause 30 of the Act. Those powers include ruling on whether there is a valid arbitration, whether the
arbitrator or tribunal has been properly appointed and constituted and which of the submitted matters have been submitted in accordance
with the arbitration agreement.

Having considered the jurisdictional issues, the arbitrator will rule either as a separate award or within the award on the substantive issues. The arbitrator is free to choose which is the most appropriate, but he will be mindful of basing his decision on whichever is the most appropriate for minimising delay and costs.

Richard Swan is based at Trett Consulting's London office

Acknowledgement

This article is based on a number of established publications:

a. Arbitration Workbook, produced by Donald Valentine MA, LLB (Cantab), Dr Jur (Utrecht), FCIArb, Barrister, Chartered Arbitrator, and endorsed by the Chartered Institute of Arbitrators.
b. Construction Arbitrations, 2nd Edition, Vincent Powell-Smith, John Sims and Christopher Dancaster.
c.
Chitty on Contracts, 28th Edition,
Sweet and Maxwell.

Toth v Jarman [2006]
EWCACiv 1028 (19July 2006)

This English legal case concerns conflict of interest relating to expert evidence. The Court of Appeal declared that, should a conflict of interest of a called expert arise, the expert evidence should not automatically be disqualified, but any conflict of interest should be declared as early as possible so as to permit the court to decide itself whether it could rely on that evidence.

Of significance, the Court of Appeal stated that the Civil Procedure Rules Committee ought to consider whether an expert should make a clear statement at the end of the report that:
1. He had no conflict of any kind other than that disclosed in his report.
2. Any conflict which he had disclosed in his report did not affect his suitability to act as expert in any matters which were the subject of his report.
3. Any change in circumstances between the date of report and the trial which affected the expert's position with regards to Points 1 and 2 would be reported to the instructing party. The effect of this case is that it places a greater requirement on
the expert to discuss, at the earliest possible opportunity, potential conflicts with instructing solicitors to further reduce the risk of challenge to the expert evidence by the opposing party.

Toth v Jarman [2006] EWCA Civ 1028 (19 July 2006)