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Replenishing the courts’ diet: is section 45 of the Arbitration Act 1996 an answer?

In this year’s Bailii Lecture, Lord Thomas, the Lord Chief Justice of England and Wales, expressed the view that the success of commercial arbitration in London has had an adverse effect on the development of the common law, as many cases that would otherwise have gone to courts instead were resolved through arbitration. He called for a rebalancing of the situation, noting the need for a proper “diet of commercial cases” for the courts, and suggested several potential solutions. One of those possible solutions is a greater use of the procedure under section 45 of the Arbitration Act 1996.

Section 45 of the 1996 Act allows a party in an on-going arbitration to make an application to the court, either with the agreement of all other parties or with the permission of the tribunal, to determine a preliminary point of law. The application must concern a question of law which substantially affects the rights of the parties. Where an application is made with the permission of the tribunal, it is also necessary that the determination of the question is likely to produce substantial savings in costs, and the application is made without delay.

It was envisaged that the section 45 procedure could be useful where an important point of law, which would be of general interest and the subject of many arbitrations, arises. It has also been suggested that this procedure could be useful where the case will turn on the question of law and the tribunal’s decision, whichever way it goes, will likely be subject to an appeal by one of the parties under section 69.

In practice, the procedure under section 45 has rarely been used. There appear to be only three reported cases where it was used. All were concerned with a point of contractual interpretation:

The Beegas case merely mentions that it was an application under section 45 without more. In Taylor Woodrow, an application by consent (recorded in the arbitration agreement), Jackson J (as he then was) concluded that the court had a residual discretion whether to determine the question of law posed once the threshold conditions under section 45 have been satisfied, and provided some guidance on how that discretion is to be exercised. Finally, in Turner Estate, Coulson J set out the critical ingredients of an application under section 45.

So why is the procedure in section 45 so rarely used? There is no clear evidence, so a degree of speculation is required. First, there are likely to be general considerations of time and cost. As with any interim step, a reference to the court will most likely result in at least some delay to the arbitration (which might be stayed). Although in Turner Estate, Coulson J was willing to assist the parties by giving his answers at the end of the hearing, it may not always be possible for the court, nor indeed desirable, to decide a section 45 application on an urgent basis.

Further, there is no obvious cost advantage resulting from the court, rather than the tribunal, deciding the point of law. In an ad valorem fee arrangement, the tribunal’s fees are unlikely to be reduced even if the point of law is hived off from its jurisdiction. In that scenario, a reference to the court might increase the overall cost. Even in an hourly fee arrangement, the cost of pursuing a section 45 reference will reduce, and possibly outweigh, any savings gained from reducing the tribunal’s workload.

The above point is different from that made in Taylor Woodrow and Turner Estates, in that determination of a point of law on a preliminary basis will likely produce a substantial reduction in costs. A similar outcome could, in principle, be achieved in an arbitration by bifurcating the arbitral proceedings, with the tribunal deciding the point of law on a preliminary basis, and making a partial final award. Unfortunately, it is unclear from the reports in Taylor Woodrow and Turner Estates why the respondents in the respective arbitrations made an application to the court, rather than leaving the tribunal to decide the points of law.

Secondly, most arbitrators these days are professional lawyers, amongst them retired judges, Queen’s Counsel and professors of law, who are well qualified to determine points of law arising in an arbitration. There is no obvious skills gap requiring the court’s assistance. Nor would a party want to risk upsetting the tribunal by effectively suggesting that it is not up to the task of determining an important point of law.

Thirdly, there could be other considerations, such as to maintain as far as possible the privacy and confidentiality of the arbitration, and reduce any disclosure to a minimum. It might also be desirable to preserve the option of appealing the award under section 69, which in principle could be easier to do than appeal the court’s decision under section 45(6).

What could be done to encourage greater use of section 45? Turner Estates suggests that the court can hear and decide an application promptly and be sympathetic to the needs of the parties to the arbitration. If that approach were made standard, perhaps even through some formal procedure or guidance, it would reassure arbitration users that a trip to the court will likely be worthwhile, both in terms of time and cost.

A more direct approach would be to amend standard institutional arbitration clauses or rules to provide for an automatic option to refer a point of law to the court. Yet more drastically, section 45 could be amended along similar lines. Such a move, however, could hardly be made without a more fundamental shift towards greater court intervention, something that is unlikely to inspire much enthusiasm in the arbitration community.

King & Spalding Grigori Lazarev

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