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Arbitration Insights: Arbitration and the National Courts

WITH JACOB MUTEVEDZI

The relationship between arbitration and the courts is always evolving. A few decades ago the courts did not trust arbitration and would extensively intervene in arbitration proceedings with a view to maintaining some control over it.

Nothing illustrates the distrust that the courts bore towards arbitration better than the 1968 US federal court decision in American Safety v J.P. Maguire, (2nd Cir 1968) where the court remarked:

“Just as issues of war and peace are too important to be vested in the generals […], decisions on antitrust regulation of business are too important to be lodged in arbitrators chosen from the business community…”

This outdated attitude by national judges emanated from the assumption that court litigation was the “normal way” of settling disputes and that the use of arbitration was, therefore, exceptional. Ironically, this assumption ignores the fact that historically, the use of arbitration to resolve disputes pre-dates the advent of nation states and their court systems. Secondly, this assumption can no longer be justified in a globalised economy where arbitration has assumed pole position as the preferred method of resolving international commercial disputes.

In contemporary times the attitudes of municipal courts towards arbitration have completely changed. In most developed jurisdictions, arbitration is not perceived as an inferior method of dispute resolution anymore. The majority of national courts has moved from strong interventionism to outright support for arbitration. These courts recognise party autonomy and respect the parties’ right to oust the jurisdiction of the court.

This new-fangled attitude towards arbitration is demonstrated by the English House of Lords in Pioneer Shipping Ltd v BTP Tioxide Ltd (‘The Nema’) [1981] where the court said:

“Parties may oust the jurisdiction of national courts to supervise the way in which arbitrators apply the law — there is a clear parliamentary intention to give effect to the turn of the tide in favour of the finality in arbitral awards.”

This attitude was echoed by the United States Supreme Court in Hall St v Mattel (2008) where the court stated that:

“It makes more sense to see the US Federal Arbitration Act as substantiating a national policy favouring arbitration with just the limited review [by national courts] needed to maintain arbitration’s essential virtue of resolving disputes straightaway.”

Modern arbitration statutes reflect this modern attitude towards arbitration. For instance Article 5 of the UNCITRAL Model Law provides as follows:

“In matters governed by this Law, no court shall intervene except where so provided in this Law.”

The preponderance of arbitration laws across the globe has curtailed the cases in which courts can intervene in arbitration. Most national courts will aim to intervene only when it is necessary to do so in order to support the effectiveness of the arbitration system.

Therefore, one may hazard to conclude that in modern times, the relationship between national courts and arbitration is symbiotic. Although arbitration has been defined as a “private and non-national dispute resolution mechanism”, it is heavily dependent on the courts. For it to succeed, arbitration needs the support of domestic courts.

There are several reasons for that. The main reason being that arbitral tribunals do not have the power to impose sanctions on parties. For instance arbitral tribunals cannot order the attachment of parties’ assets. Further, arbitrators are not equipped with the powers bestowed on the courts when a party is in breach of a decision of the court. They cannot sanction parties for contempt of the court. Therefore, whenever the decision of a tribunal needs to be given practical effect because the recipient of the decision is not complying with the terms of the decision, parties need recourse to the courts.

There are different stages at which the national courts may be requested to intervene in support of arbitration. Curial intervention can actually be sought at the very beginning of proceedings before the tribunal has made any decision. For instance, before an arbitrator is appointed, a party may need to approach the municipal courts to seek interim relief. Take for example the case of a claimant which claims that the respondent is in the process of dissipating its assets; such a claimant may need to approach the courts on an urgent basis, sometimes on an ex parte basis, to secure an order freezing the assets of the respondent.

Why is this court intervention necessary? Because if the claimant does not do so, and the arbitration drags on for a year and a half, maybe even two years, by the end of the arbitration the claimant can find that the respondent is bereft of any assets against which to levy execution. Thus the courts can intervene at the very beginning of the arbitral process.

In the course of the arbitration, it may be necessary for a party to approach the domestic courts for relief. For example is a witness refuses to testify in arbitration proceedings. If that witness is not a party to the arbitral proceedings, and has not consented to arbitrate the dispute, the arbitral tribunal does not have jurisdiction over that witness. It cannot subpoena that witness to come and testify in the proceedings. In the circumstances, the national courts can be approached to compel a particular witness to testify in arbitration. Other orders can be made by the courts to protect evidence or to prevent destruction of evidence by one party.

Courts also frequently get involved at the end of the arbitration proceedings either in the recognition and enforcement of the arbitral awards or during an application to set aside an arbitral award. The arbitral award can be examined by the courts either at the enforcement stage (see New York Convention Article V) or if the award is challenged by the losing party (Model Law Article 34).

In conclusion, it is now generally accepted that national courts should only intervene in arbitration proceedings to support such proceedings, not to hinder their progress. The proper role of the courts vis-à-vis arbitration should therefore be one of support, not one of oversight.

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