A Guide to Arbitrability in International Arbitration

Introduction

When parties agree to submit disputes to arbitration there is often language defining the issues that can be determined by arbitration, such as ‘any dispute arising out of or in connection with this contract, including any question regarding its existence, validity or termination’ (LCIA recommended clause). Once a dispute has arisen the exact scope of the issues before the arbitral tribunal will likely be detailed in the terms of reference or other procedural document.

Certain types of disputes however are not arbitrable in that, as a matter of national law, they are considered not to be available for resolution by an arbitral tribunal but instead must be reserved to, and resolved by, a nation’s judicial or other official public systems of dispute resolution.

This article will discuss the concept of arbitrability of claims in the context of international arbitration, and explore the recent developments surrounding this subject. 

What is arbitrability?

Arbitration is a private dispute resolution process in which parties agree to refer disputes to a tribunal and accept the outcome, rather than use a national court. It is grounded in the freedom of parties to contract and so only matters which parties can make subject to a private contract can be referred to arbitration.

This is reflected in several key international treaties and laws. For example, Article II (1) of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) provides that “Each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.”

Articles 34(2)(b)(i) and 36(1)(b)(i) of the UNCITRAL Model Law on International Commercial Arbitration 1985 (with amendments as adopted in 2006) provide that an arbitral award can be set aside if ‘… the court finds that… the subject-matter of the dispute is not capable of settlement by arbitration under the laws of this State…” and “Recognition or enforcement of an arbitral award, irrespective of the country in which it was made, may be refused only… if the court finds that…the subject-matter of the dispute is not capable of settlement by arbitration under the law of this State…”

Furthermore, section 103 (3) of the English Arbitration Act 1996 provides that “Recognition or enforcement of the award may also be refused if the award is in respect of a matter which is not capable of settlement by arbitration…”

However, the categories of what are and what are not arbitrable vary from jurisdiction to jurisdiction although there are a number of well-recognised categories of dispute that may not be capable of being resolved by arbitration. A dispute will generally not be arbitrable if it involves an issue of public policy, public rights or the interests of third parties, or where the dispute in question is clearly covered by a statutory provision which provides for unassailable access to a nation’s judicial or other official public systems of dispute resolution.

Some of the categories of dispute that are widely recognised as being incapable of being referred to arbitration include the following:

Disputes arising from criminal or illegal activity

Bribery, corruption, criminal conduct and fraud all raise questions of public policy and criminal law. Generally, as these disputes are considered to fall within the remit of prosecutors and criminal justice systems, they are viewed as non-arbitrable. However, where parties seek to arbitrate civil disputes involving or connected with a criminal or illegal activity and what is sought is the civil consequences of that conduct, particularly damages and compensation, they may be able to resolve their dispute through arbitration if the applicable national law permits this.

In Interprods Limited v De La Rue International Limited [2014] EWHC 68, the court held that an arbitration clause providing for arbitration in respect of “any dispute arising out of or in connection with the contract” covered situations in which the contract was terminated by one party because of its belief that the other party was engaging in criminal conduct. Clear words would be needed before the parties could be taken to have intended that an allegation of criminal conduct should deprive the arbitral tribunal of jurisdiction. 

Insolvency

It is generally accepted across jurisdictions that pure or core insolvency issues, such as bankruptcy and winding up proceedings, are not arbitrable. The rationale is that most countries require the core insolvency process to be subject to their statutory regime and kept as a public and state-regulated procedure to ensure, as far as possible, protection for creditors and not only those party to an arbitration agreement. Therefore, in most countries, only their national courts or other official public systems of dispute resolution can adjudicate on bankruptcy or winding up proceedings.

While neither a tribunal nor the process of arbitration has the power to bankrupt an individual or wind up a company, any dispute concerning a debt which forms the basis of such a petition can be resolved via arbitration if the parties so insist.

In Fulham Football Club (1987) Limited v Sir David Richards and The Football Association Premier League Limited [2011] EWCA Civ 855, the Court of Appeal of England and Wales observed the conclusion reached by the Singapore Court of Appeal in Larsen Oil and Gas Pte Ltd v Petroprod Ltd [2011] SGCA 21 and drew a distinction between disputes involving an insolvent company that stem from its pre-insolvency rights and obligations and those disputes that arise only following the onset of insolvency due to the operation of the insolvency regime. The English Court of Appeal also noted that disputes arising under provisions of the UK Insolvency Act 1986 which apply to liquidation, as well as those provisions that apply to liquidators’ powers to intervene in and set aside transactions with third parties in the context of the insolvency regime, may not be submitted to arbitration.

More recently, in Riverrock Securities Limited v International Bank of St Petersburg (Joint Stock Company) [2020] EWHC 2483 (Comm), the English Commercial Court held that the fact that a claim and the relevant relief concern insolvency law does not, under English law, automatically render the claim non-arbitrable.

Real estate title issues

Issues of arbitrability may also arise where the dispute relates to title to a property or real estate. Most countries will have significant and mandatory state involvement in the creation, registration and conveyance of title to property. Furthermore, an arbitral award can only ever bind the parties to the award, so while an arbitral tribunal can make a direction in an award about title to property, it is not possible for it to bind a non-party. It is therefore unlikely that an award on its own can ever transfer title in property or real estate.

Conclusion

The key take away points for all users of arbitration are:

• Before the underlying agreement is agreed, ensure that any intended substantive disputes are arbitrable under the agreed law of the arbitration as well.
• Think carefully about the appropriate seat of the arbitration and that seat’s attitude towards arbitrability.
• Be aware that substantive disputes agreed to be determined by arbitration may stray outside the arbitration process, e.g. if a dispute about a debt leads to the administration, receivership or liquidation of a company.

Our expertise

With offices in many of the world’s major arbitration centres, including London, Paris, Geneva, Dubai, Hong Kong and Singapore, we are ideally placed to work with you both to prevent and to resolve disputes as they arise, whatever the law, language, rules, industry sector, or subject matter of that dispute may be. Our dedicated multicultural and multilingual specialists conduct arbitrations under both civil and common law systems and regularly act in arbitration-related domestic court proceedings.

Whether you are a state, a state-owned entity, a sovereign wealth fund, a corporate, a sports federation or authority, private business or individual, our strategically focused specialists will work alongside you through every aspect of any arbitration. Please contact Thomas Snider or your usual Charles Russell Speechly LLP contact if you would like to get in touch.