Author: Jennifer Haywood
Last year, the Law Commission proposed that a challenge to an arbitration tribunal’s jurisdiction under section 67 of the Arbitration Act 1996 (“the Act”) should be by way of appeal rather than rehearing, as is currently the case. (Although the Act does not expressly state that hearings of s67 applications are to be conducted by way of rehearing, the courts have proceeded on the basis of full rehearings (Azov Shipping Co v Baltic Shipping Co (No 1); Dallah v Pakistan  UKSC 46, a challenge to a foreign award on the ground of jurisdiction under s103 of the Act).
The consultation elicited strong views both in support of and against the proposal.
Many respondees strongly supported the initial proposal because a full rehearing can cause delay and increase costs. The ability to start anew on the application to court does not incentivise a party challenging jurisdiction to put all its arguments forward at the initial hearing before the tribunal; the arbitral process may be undermined, and the potential for a rehearing may make England and Wales less attractive as a seat.
Others opposed the proposal on the ground that a tribunal which has erred in determining that it has jurisdiction simply has no jurisdiction; the parties have not consented to arbitration and any award by the tribunal is null and completely irrelevant. Given the fundamental nature of jurisdiction, they argue that there should be no limits on the parties’ ability to challenge such jurisdiction.
Rather than stipulate that any challenge is heard by way of appeal, the Law Commission now proposes that the rules of court should be used to establish limitations on any challenge under s67 of the Act. They suggest that, where an objection to jurisdiction has been made and the tribunal has ruled on jurisdiction, the limits to a challenge should be that:
- The court should allow a challenge where the decision of the tribunal was wrong;
- The court should not entertain any new grounds of objection, or any new evidence, unless even with reasonable diligence the grounds could not have been advanced or the evidence submitted before the tribunal; and
- Evidence should not be reheard, save exceptionally in the interests of the justice.
The second and third limbs strike a balance between the main arguments in favour of and against the previous proposal. By leaving open the possibility of a full review of all the arguments and material put before the tribunal, rather than requiring a challenge to proceed by way of appeal, the proposal should ensure that wrong decisions on jurisdiction are set aside, so that parties are only bound when they have consented to the arbitration.
At the same time, challenging parties would be required to put their case fully before the tribunal, rather than being able to have a half-hearted rehearsal before the tribunal and then make good deficits in their arguments and evidence on an application to court. Preventing new arguments from being raised, or new evidence being adduced, on a challenge under s67 would be consistent with s73 of the Act, which provides that if a party does not raise an objection to jurisdiction promptly, he will lose the right to object later, unless he did not know and could not with reasonable diligence have discovered the grounds for objection.
Limiting the introduction of new evidence would bring the position in line with, or closer to, that of Switzerland and Singapore.
The first limb of the Law Commission’s proposal is more problematic insofar as the Law Commission’s intention is that the court should give deference to the decision of the tribunal, and only decide whether the tribunal’s decision is wrong rather than decide the issue itself afresh. If the tribunal has no jurisdiction, it is difficult to see why the tribunal should be given deference.
The Law Commission considers that its new proposals are consistent with the wording of s67 and reform of the wording of the Act is therefore not required. However, the Law Commission also considers that the weight of case law since the decision of the Supreme Court in Dallah means that some form of legislative reform would be required to bring about its proposals. Whilst the Commercial Court can and does exercise control over challenges under s67 by using its case management powers, these are the same case management powers that apply to other matters and so tend to be used for excluding evidence which is irrelevant, rather than excluding evidence which has not been adduced before the tribunal.
Hence the Law Commission is proposing making the changes through rules of court, supported by an amendment to the Act to confer a power to make rules of court concerning s67 challenges.
For the avoidance of doubt, the Law Commission is not proposing any changes in respect of s103, despite the concerns of some respondees to the first consultation that the Law Commission’s proposals would introduce an inconsistency between s67 and s103, which concerns challenges to jurisdiction in respect of foreign awards. Most respondees, and the Law Commission, were of the view that the two provisions deal with different regimes, and therefore do not need to be consistent. In any event, the Supreme Court observed in Dallah that the standard of review under s103 might vary according to the circumstances. For example, if the award has already been challenged before the courts of the seat, an estoppel may have been created.
In conclusion, placing limits on the ability of a respondent disputing jurisdiction to introduce new arguments and/or new evidence on a s67 application after a decision by a tribunal should minimise delay and expense without adversely impacting the ability of the court to scrutinise objections to jurisdiction promptly made.
The Law Commission invites responses by 22 May 2023.
Jennifer is a fellow of CIArb and has experience of arbitrating domestic and international disputes in sectors including media, pharmaceuticals, professional services, property and finance. She has been appointed as sole arbitrator, co-arbitrator and chair, and she now practises full-time as an arbitrator and mediator. She is able to draw on her background in life science and her experience as counsel, particularly her experience of disputes between members of partnerships/LLPs, companies and joint ventures; trusts disputes; and contractual disputes, especially those involving allegations of fraud and/or breach of fiduciary duty and/or breach of a duty of good faith.