Branch Meeting 11 March 1997

The Arbitration Act : part 2

Ian Menzies

Ian sub-titled his talk ‘Where has all the money gone’ and provided substantial and comprehensive notes, concentrating on five specific aspects where the Act changes what we have become accustomed to or has introduced something completely new. As the full notes were available to all who attended and can be made available to those who did not, this report will only highlight the matters discussed.

Security for Costs

Several Rules already provide power for the Arbitrator to order security for costs. What is new is that the power is now extended to all arbitrations unless the parties agree (in writing) to take it away. While the courts have guidelines, from Parkinson -v- Triplan there is little guidance as to how an Arbitrator should approach it. The Institute’s Sub-Committee suggested that the following factors should be borne in mind:

(a) whether there is an arguable prima facie claim

(b) whether the Claimant has any accessible assets

(d) whether the Respondent’s conduct has had any effect on the Claimant’s alleged want of means

(e) whether the application is timeous

(f) whether the nature of the arbitration is a factor

(g) whether it would be fair and just to order security

As Rutherford & Sims put it ‘the overriding factor is simply whether it is fair in all the circumstances to order the Claimant to provide the security. The Arbitrator who decides the matter by applying that principle alone will not go far wrong.

Capping Costs

This is something completely new. The perceived wisdom is that it is a good and innovative provision and it is supported by the DAC Report, Harris, Planterose & Tecks and Rutherford & Sims. I remain less than wholly convinced. Rutherford & Sims sensibly suggest that a capping order should only be made after consultation with the parties. I suggest that failure to allow the parties to make representations on such an important matter could be viewed as a breach of the arbitrator’s s.33 duty to act fairly and impartially and to adopt suitable procedures. A note of caution - the costs of the arbitration include arbitrator’s fees and so on. Common sense suggests that it is only the parties costs which would normally be capped and appropriate wording should be used to ensure that this is made crystal clear.

Ex aequo et bono

S.46(1)(b) makes provision for the dispute to be decided ‘if the parties so agree, in accordance with such other considerations as are agreed by (the parties) or determined by the tribunal’ Editor’s note: see elsewhere in this issue for commencement of this sub-section. One of the best analyses of what ex aequo bono and amiable composition are all about is an article by Prof. RH Christie in the November 1992 issue of ‘Arbitration’. Such agreements are, I understand, fairly common in reinsurance treaties but they are not something which I have come across. I suspect that in many smaller cases, where parties are not legally represented, agreement not to bind the arbitrator to the strictures of the law may well be forthcoming but I cannot see it happening in major or significant cases where legal expertise is deployed. It precludes appeals on points of law and lawyers, by nature, are reluctant to close any possible escape routes no matter how confident of success they are.

Provisional Awards

Are we dealing with an award or an order or an order within an award? Harris, Planterose & Tecks and Rutherford & Sims are in no doubt that in exercising this power there is no need to comply with the formalities of s.52 concerning awards. My own view, for what its worth, is that this section does mean an award. If I am wrong, and I hope I am, then what is the machinery for enforcing compliance? If an order then the party would have to apply for a peremptory order under s.41(5) and then under s.42 for a court order to enforce the peremptory order. The power can only be exercised if the parties agree. If the parties are agreed that at least an ascertainable sum is owing then surely they would agree to pay it without all the hassle of going through the tribunal. If there is no such agreement then why should the Respondent agree to allow the arbitrator to order it to pay up? Finally, what happens if such an order is made, it is complied with, in the final award the arbitrator concludes that the ordered payment was too high and meantime the recipient has gone into liquidation?

Interest

The provisions under the 1950 Act, s.19A power to award interest and s.20 that a monetary award carried interest at the judgement debt rate have both gone. Now, under s.49, the parties are free to agree on what powers the arbitrator has in respect of interest. If there is no such agreement, and I suggest that that will be the norm, then the award can be of simple interest or compound interest on the sum awarded or on any sum claimed but paid during the arbitration and the arbitrator can also award such interest from the date of the award, or even from some later date, until the date of payment. The post-award interest can be applied to the principal sum, interest on that sum and any award of costs. This change brings interest into line with commercial reality. In deciding what to do, several questions have to be posed and answered:

(a) is there any contractual provision for interest on late payment?

(b) if so, is it applicable?

(d) if so, between what dates should it run?

(e) should interest be simple or compound?

(f) if compound, what rests are appropriate?

(g) what is the appropriate rate to apply?

(h) is it, in all the particular circumstances, fair to make such an award?

I can see nothing in this Act which prevents an arbitrator from making his or her own calculations and simply awarding a specific sum by way of interest. If an arbitrator fails or forgets to deal with post-award interest there will be none, there is no fall back provision.

This has necessarily been a fairly rapid but I hope not too superficial look at five very important topics. If I have raised more questions than I have answered, I make no apology for that. Until some of these points have been dealt with by the courts there are bound to be questions. What I hope I have done is alerted you to some of the potential pit-falls inherent in some of these unfamiliar powers and duties.

Questions and clarifications

• If the arbitrator does not deal with interest the parties have no come back. What if the parties have asked for interest to be dealt with?

IM The arbitrator has to deal with it. Editor’s note: See s.57 for powers to amend awards

• When relying on a professional indemnity policy, what would be the consequences of the parties adopting ‘fair and reasonable’ or other than English law which would be avoiding the underlying policy of the Respondent

IM One party will refuse to agree especially if an insurance company is involved. Re-insurance is often phrased in equitable terms.

• Suppose that you have an ‘equitable’ agreement but the arbitrator decides in accordance with law?

IM Arbitrator could say "If I was deciding in law I would have decided ‘x’, I find the same in equity".

• If the parties wanted an equitable award and this was registered with the court, would not the insurance company pay up?

• Not if outside its contract.

IM If enforced by the court then surely it is under English law

• S.39 does state ‘order’ and most commentators speak of a default power. As parties have to agree then the arbitrator could ask the parties what they mean.

IM You could say "I have this power but I am not persuaded that I should exercise it".

• Security. Payment into court is OK. If by guarantee bond, the Claimant could pay 15% for the bond. Does that become a cost in the arbitration if he is successful?

• If he had been asked to put up cash then interest would not have been paid

At this point Ian took a ‘straw poll’ and the majority favoured including the cost of the bond with costs of the arbitration.

• It was the Respondent who required security and, if found to be unwarranted, then why should he not be liable for the additional costs.

• How far do equitable awards have to comply with the Act?

IM Even if determining (under the contract) under rules other than English law, it does not relieve you or the parties from conducting the arbitration under the Act.

• Under s.60 an agreement to cap costs is void. After the dispute the Arbitrator can do what is void under the Act.

• Could the capping of costs be used to limit, say, experts

IM The power is already there, to limit evidence, etc

• Is it more likely to direct capping to a particular part of the case

IM Agreed - say for discovery of documents. Even under the old legislation, I have said that I would take into account on taxation - without stating a figure

• How does this fit in with ‘avoid undue delay and expense

IM The arbitrator has no control over what the parties spend. You only control the determination of reasonable costs.

• Is it in the arbitrator’s power to say that the reference should be on documents only and decline to hear oral evidence

IM Yes. Under most systems of law, if one party applies for a hearing then it should be held. The Arbitrator appears to have power to refuse but this may be a failure properly to conduct the proceedings.

• If one party wants a hearing and the other party wants documents only, why should he be forced into a hearing. Was it wrong to deprive a party of a hearing under rules?

IM I think that a party is entitled to his day in court

• Having been appointed by the President after 31 January, it is not clear when the notice was issued, can the parties decide that the arbitration commenced after 31 January

IM The parties may decide when the arbitration commenced. If they decide before 31 January then it would be under the old law and they would not have the power. You can’t decide on a date before 31 January 1997.

• Parties may pay large sums of money up front on experts, etc. What should the arbitrator do if he is thinking about capping costs when the money might be spent before the arbitration started

IM Costs incurred before the arbitration commenced may be paid if the work carried out was used in and beneficial to the arbitration.