TagTime with Matthew Gearing QC – Appeals on Questions of Law – Worth the Trouble?*

Author: Caroline Thomas**

 This post summarises Delos’ first TagTime webinar of Season 3 during which Matthew Gearing QC,† a leading arbitration practitioner, was interviewed by Dr. Kabir Duggal and Amanda Lee.[1] Their discussion zoomed in on the controversial s. 69 of the English Arbitration Act 1996 (“Act”)[2] (including its genesis, advantages and disadvantages) and concluded with a succinct survey and commentary on whether (and if so why) other jurisdictions allow arbitration awards to be appealed on the basis of questions law.

A DELICATE BALANCE

Mr. Gearing’s interest in the question of whether appeals on questions of law are worth the trouble seems to most recently have been piqued by the proposal, raised in context of law reform proposals in Singapore, that a mechanism similar to s. 69 should be introduced to apply to international arbitration in Singapore. Reforms of arbitration laws are generally aimed at making a jurisdiction more favorable to arbitration. What Mr. Gearing was ultimately exploring during his TagTime interview was therefore whether or not  allowing appeals on questions of law is favorable to arbitration. Mr. Gearing’s final TagTime slide aptly includes a scale. On the one hand, a key selling point of arbitration is that final awards are rendered (and this in turn tends to require that the grounds for appeal be narrow and judicial interference minimal). On the other hand, arbitrators sometimes do make errors of law (which is particularly distressing to a losing party if it cannot appeal and which, arguably, is not what the parties bargained for). Moreover, in common law countries, there is the need for the law to develop through court decisions.

HISTORY OF S. 69 OF THE ACT – THE “NEMA”

S. 69 of the Act is unique and goes further than the generally accepted grounds to challenge an award which are jurisdiction and substantial procedural impropriety (as enshrined in art. 34 of the UNCITRAL Model Law on International Commercial Arbitration[3] and mirrored in most national arbitration laws). S. 69, so Mr. Gearing QC explained, originates in the judgement by Lord Diplock in Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema).[4] Before the Act was passed, a deliberate decision was taken, in spite numerous consultation responses calling for the abolition of any right of appeal on the substantive issues in the arbitration, to preserve a limited right of appeal and this became s. 69(3)(b) of the Act. This twin test applies when: “(i) the decision of the tribunal on the question is obviously wrong, or (ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt”. In practice, when a considering whether to grant leave under s. 69, judges apply an impressionistic test (rather than detailed review of the merits) and tend to defer to the arbitrators as having been in the best position to consider and analyse the evidence. Mr. Gearing QC explained that the twin limbs of the test (especially the underlined terms) overlap.

HOW S. 69 OPERATES

Mr. Gearing QC explained that s.69 of the Act has three limitations:

1. Unlike the other sections of the Act which deal with appeals, s. 69 is not mandatory (s. 69(1)). This means that the parties to a contract are free to opt-out which they frequently do by incorporating (by reference) the rules of arbitral institutions which provide that awards are final.
2. Appeals can only be granted with the leave of the court (or, in theory, the agreement of all parties) (s. 69(2)). The Court will only grant leave if it is satisfied that s. 69(3) requirements (i.e. the Nema test) has been fulfilled.
3. The point of law being appealed must be a point of English (i.e. not foreign) law (Reliance Industries Ltd v Enron Oil and Gas India; [5] Schwebel v Schwebel).[6]

Moreover, to fall within s. 69 an appeal must be on a matter of law (and not fact) applying the three stage test in the Vinava Shipping Co Ltd v Finelvet AG (“The “Chrysalis”).[7] While this may seem obvious, applications for leave to appeal often fail to pass at this, often hair-splitting, hurdle. Few cases are granted leave and fewer still are successful. Mr. Gearing QC cites Commercial Court data that suggests that between 2015 and 2020 only 46 to 87 s. 69 applications were filed annually with leave to appeal granted in a maximum of a third of the cases. In the same years, zero to a maximum of four cases were successful.

IS ALLOWING APPEALS ON QUESTIONS OF LAW FAVORABLE TO ARBITRATION?

Mr. Gearing QC’s answer is “yes” provided that the gateway is appropriately narrow. He notes that because the application of the s. 69 right to appeal is so limited, in most cases this “modest curtailed right” does not operate. Should the proposal in relation to international arbitration in Singapore eventually proceed (and Mr. Gearing QC does not believe this is likely to occur soon), he suggests that any amendment to the law not include the outdated third limitation that the point of law being appealed must be a point of Singaporean law. This is because if it is included the gateway would be too narrow. In this day and age, in international arbitration, the law of the seat is not necessarily the same as the applicable law. Furthermore, this trend is perhaps even more pronounced in Singapore than in England. Additionally, Mr. Gearing reasons that if parties agree that it will be possible to appeal awards if there are egregious errors of law, then why should this right be limited to only errors of the law of the seat? I agree with Mr. Gearing QC.

TO OPT-IN OR TO OPT-OUT?

As a junior lawyer I asked a senior member of the Hong Kong government why, as part of its modernisation of its arbitration law, Hong Kong had adopted an opt-in mechanism for appeals on questions of law rather than an opt-out regime (like s. 69). My concern was that few parties opt-in because this is not commonly considered when an arbitration clause is drafted. The senior government official seemed surprised by my question and answered that parties to arbitration overwhelmingly desire finality. While that is true, I also believe that the other side of the balancing exercise is important. I recall speaking to several Queens Counsel in London several years later (in 2015) about the prospects of appealing an English award on a matter of insurance law. They advised me that it was worth seeking leave under s. 69 (in spite of the low percentage of s. 69 appeals granted leave) as there were increasingly voices in the English Commercial Court proposing that the s. 69 leave requirement be loosened by the Courts on the basis that more appeals are required for England to continue to develop robust case law and sustain the arbitration hub. Since commercial arbitration is confidential and does not create binding precedents, for the common law to be able to continue to develop in support of arbitration, it is arguable that more appeals from arbitration awards must be granted leave – particularly in on matters of law that are typically only arbitrated such as shipping and construction. In the webinar, Mr. Gearing QC quoted the Right Hon. Lord Thomas of Cwmgiedd’s speech on developing commercial law through the courts and rebalancing the relationship between the courts and arbitration.[8] In this speech, Lord Thomas argued for s. 69 to be broadened and for the courts to “go back to a more flexible test for permission to appeal before Lords Denning and Diplock restricted the ability to appeal by the interpretation he gave to the 1979 Act and before this was codified in the 1996 Act.” There appears to have been significant resistance to Lord Thomas’ proposal, including by judges. Nonetheless, one might assume that his arguments echo at the back of the minds of Commercial Court judges when they apply the s. 69 leave test which arguably does give them a fair amount of discretion on which cases they wish to hear.

Finally, I note that the proposal being considered for international arbitration in Singapore is that there be an opt-in mechanism (unlike s. 69 which is opt-out). Could it be that s. 69 would still give England a comparative advantage? Alternatively, might arbitral institutions consider this point when next revising their Rules?

[1] Matthew Gearing QC, Appeals on Questions of Law – Worth the Trouble?, TagTime (Jan. 27, 2021), available at https://member-delosdr.org/video-tagtime-matthew-gearing-qc-on-appeals-on-questions-of-law-worth-the-trouble/.

[2] Arbitration Act 1996, c. 23, § 69.

[3] U.N. Comm’n on Int’l Trade Law [UNCITRAL], Model Law on International Commercial Arbitration (1985, as amended in 2006), art. 34.

[4] Pioneer Shipping Ltd. v. BTP Tioxide Ltd. (The Nema) [1982] AC 724 (HL) (appeal taken from Eng.).

[5] Reliance Indus. Ltd. v. Enron Oil and Gas India Ltd. [2002] 1 All E.R. (Comm) 59.

[6] Schwebel v. Schwebel [2010] EWHC 3280.

[7] Finelvet AG v. Vinaya Shipping Co. Ltd. (The Chrysalis) [1984] 2 All ER 658.

[8] Mar. 9, 2016.

* This post is part of a series summarising Delos Disputes Resolution’s TagTime webinars. A list of past TagTime webinars is available at https://delosdr.org/index.php/past-webinars/.
** Caroline Thomas is an arbitrator and lawyer qualified in England & Wales and Hong Kong.
† Matthew Gearing QC is a partner in Allen & Overy’s Global Arbitration group. Later this year, he will leave Allen & Overy to join Essex Court Chambers in London and also, subject to approvals, Temple Chambers in Hong Kong. Matthew Gearing QC was appointed Queen’s Counsel (England & Wales) in February 2014 and held the position of Chairperson of the Hong Kong International Arbitration Centre from 2017 to 2020. He also co-edits the seminal tome Russell on Arbitration and chapter 8 of the 25^th edition thereof may reflect this TagTime webinar.