Arbitration hindering development of common law – LCJ

Topics: Courts business,Alternative dispute resolution,Judicial

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  • John Thomas

Arbitration is seriously impeding the development of commercial law, the lord chief justice has warned, calling for a redressing of the balance between the two.

In a speech last week, Lord Thomas of Cwmgiedd (pictured) said that in retrospect the UK took a ‘wrong turning’ in 1979 and in 1996 when it introduced measures to make arbitration more attractive in the international market.

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The measures centred around limiting the number of appeals that would come before the courts, to give more finality and certainty to arbitration awards. 

Thomas said limiting the number of appeals reduces the potential for the courts to develop and explain the law, which he said could endanger the development of the common law as the framework to underpin international markets, trade and commerce. 

He said: ‘The change has been hailed as a “pragmatic compromise”, but the clear consequence that can be seen today is that far fewer developments of the law are made in areas where the probability is that the case has had to begin in arbitration.

'As arbitration clauses are widespread in some sectors of economic activity, there has been a serious impediment to the development of common law by the courts in the UK.’ 

He noted that across many sectors of law traditionally developed in London, particularly relating to the construction industry, shipping, insurance and commodities, many have expressed concern about the lack of case law on standard contracts and changes in commercial practice.

Thomas said that the time is right to look again at the balance between arbitration and the development of common law.

Outlining three ways in which the balance could be redressed, he suggested revising the criteria for appeals, to go back to a more flexible test for permission to appeal.

This would enable the courts to more readily develop the law whilst leaving arbitration as an important means of dispute resolution, he said. 

Greater use of section 45 of the Arbitration Act could also be encouraged, to enable the court to give decisions on points of law arising after the start of arbitration.

Finally, Thomas suggested a greater shift towards litigation. He said that many of the perceived benefits of arbitration, namely that it is confidential, allows greater ease of enforcement and is cheaper and more efficient, were not clear cut and would not stand up against detailed scrutiny today.

He said: ‘Many now see the advantage of court proceedings for some types of dispute, particularly those where the issue at stake is of wide application. The courts have shown that they can lead the way in innovation and in short-form dispute resolution.’ 

Thomas also said there is a need to examine whether other markets would be prepared to follow financial markets, by waiving arbitration in cases where there are significant points of general interest that would be better determined in court.

He said: ‘There is an increasing realisation […] that what matters more to the centrality of the common law, particularly as developed in London, is its use as a basis for doing business. That is, in my opinion, a far more important consideration than the business of dispute resolution in London.’

Readers' comments (13)

  • But this implies that the Lord Chief wants people to take cases to trial... I thought every measure over the last 15 years taken in Civil Justice had been done so in order to avoid litigators going to trial or even issuing proceedings at all?

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  • Hmmm more like arbitration means less commercial companies pay the ludicrously high court fees and so the powers that be dont get paid...

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  • But how will we market London as the go-to legal centre for the fabulously wealthy, corporate or otherwise, if we can't exhibit various examples of the great PLC's and public institutions of the world fighting it out over the minutiae of commercial contracts?

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  • Well, if the UK stays in the EU civil law will be forced upon England & Wales so the learned judge need not worry about the common law if it is Yes to stay in. Perhaps he should be swotting up the French and German civil codes and some delict.

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  • I think the LCJ is swimming against the tide, and is a bit out of date. He may have a point on the costs of arbitration but both the RICS and the CIArb have instigated costs controlled arbitration schemes recently. I agree with some of the other comments maybe the courts are awash with PI claims and niff naff and trivia because all the meaty commercial cases go to arbitration. As arbitration is a consensual matter where parties opt out of the common law right to litigate, maybe the powers that be should be looking at making the litigation process more appealing (pun intended).

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  • I have spent the last 20 years developing my arbitration practice on the back of the 1996 reforms. To be told that by providing arbitration services at a reasonable cost and within a reasonable time frame, I am somehow doomed because I am inhibiting the development of common law just shows how backward leaning and unrealistic some judges can be. Tell that to the consumers of legal services if they dare!

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  • Quite frankly I am speechless and it may take me a few days to articulate a coherent response.

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  • But isn't the point that Arbitration is more usefully employed in cases where the result mainly turns on the facts, and does not hinge on legal analysis? The Arbitrator is usually appointed based on their expertise in a particular sector, not because of their expertise in common law.

    The Court still gets involved where it has to, either by way of application to determine a preliminary point of law under s.45 AA 1996, or on appeal under s.69.

    Agreeing to limit or exclude these section is really not too different to settling a case that has come before the Court, it's about the parties taking control of their own destiny. By extension of the argument, one could frown upon out of court settlements arguing that they too stifle development of the law, but would we start forcing people to litigate even where they don't want to?

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  • Surely, the main point of arbitration is that the parties do not want all and sundry knowing about their dispute? The notion that they (or anyone else) should litigate for the greater public good is naive, not least because those who do litigate find themselves confronted with costs budgeting and judges who moan when the case does not settle.

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  • Like I said,

    "Fish Rots From The Head Down"!!!!

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