In this article, we review our pick of notable arbitration-related decisions emanating from the English courts in 2016. Apart from the usual raft of decisions on challenges to awards under sections 67, 68 and 69 of the Arbitration Act 1996 (AA 1996), the courts have taken the opportunity over the last year to rule on the recoverability of third party funders' fees in arbitration, criticise the IBA Guidelines on Conflicts of Interest, and expose the trade-off between the London Court of International Arbitration's (LCIA's) emergency arbitrator provisions and the court's power to grant emergency interim relief.

The cases also highlight once again the pro-arbitration stance of the English court, as demonstrated for example by its willingness to extend the time for applying to correct an ambiguity in an LCIA award, its reluctance to intervene in a jurisdictional challenge where arbitral proceedings could be commenced, and its refusal to impose English public policy rules to prevent enforcement where the parties had chosen a different law to govern their contract.

In Essar Oilfields Services Ltd v Norscot Rig Management PVT Ltd [2016] EWHC 2361 (Comm), the Commercial Court confirmed that a successful claimant in arbitration can recover the costs of a funding agreement from a defendant. The case sent serious waves through the arbitral community.

The arbitrator in an ICC arbitration made a partial award, ordering Essar to pay costs on an indemnity basis, including £1.94 million that Norscot had paid to a third party funder.

HHJ Waksman QC (sitting as a judge of the High Court) rejected Essar's challenge to the award for serious irregularity under section 68(2)(b) of the AA 1996. He held that the third party costs were recoverable in principle under section 59(1)(c) of the AA 1996 and the applicable ICC Arbitration Rules. The court held that the third party costs fell within the ambit of "other costs", as referred to in section 59(1)(c), and that a tribunal's statutory power to award costs is expressed in the broadest terms and is not constrained by the Civil Procedure Rules that apply to English court proceedings.

The case has been the subject of much comment (see for example Blog posts, A dormant advantage of arbitration emerges: arbitrators have the power to order a losing party to pay claimant's third party litigation funding costs, Making waves: the decision in Essar v Norscot: a view from the Bar, and Out of step with the market? The English court's decision that third party funding can be awarded as "costs" to a successful claimant).

While the decision is remarkable, it should not be assumed that third party funding costs will always be recoverable in arbitration. In this case, the arbitrator took the view that, as a result of the claimant's oppressive conduct, the respondent had no choice but to obtain third party funding in order to progress its claims in arbitration. Therefore, in the particular circumstances of the case, the indemnity costs award, including the fees payable to the funders, was reasonable and appropriate. However, other tribunals may take a different view in future cases.

Nevertheless, the decision may make London-seated arbitrations more attractive to would-be claimants seeking third party funding. Indeed, on a domestic level, it may make arbitration in general a preferred choice over litigation in England and Wales, given the elimination of recovery of success fees in conditional fee agreements and of deferred contingent premiums for ATE insurance policies, following the Jackson reforms.

For further information see Legal update, Third party funder fees recoverable as costs of arbitration (English Commercial Court).

In September, the Commercial Court ruled that the emergency arbitrator provisions contained in the LCIA Arbitration Rules effectively removed the court's power to grant urgent relief in support of arbitration under section 44 of the AA 1996.

The claimant had applied to the LCIA for the appointment of an emergency arbitrator, but the application was rejected. The claimant then applied to the court for urgent relief under section 44. Rejecting the application, Leggatt J held that the test of "urgency" under the LCIA provisions was effectively the same as that under section 44. The powers of the court and the LCIA therefore overlapped and the court was not entitled to intervene by virtue of section 44(5), which precludes the court from acting unless the relevant arbitral body has no power or is unable for the time being to act effectively.

Until now, it has been unclear whether and how emergency arbitrator provisions might affect the scope of the court's power under section 44. It now appears from this judgment that the emergency arbitrator provisions in the LCIA Rules have effectively limited the court's section 44 power to cases that are too urgent to wait for the appointment of an emergency arbitrator.

As discussed in Blog post, Emergency arbitrators at the expense of urgent relief from the English courts: a trade-off worth making?, it remains uncertain how a court will deal with an application for relief where the court agrees that the matter is urgent but the application to the institution for an emergency arbitrator or expedited tribunal is refused. The question did not arise in Gerald Metals, because the court considered that, even if it did have power to grant relief, the matter was not urgent in light of undertakings given by the respondent. However, had the court taken a different view as to urgency, it is unclear whether the institution's refusal to act would amount to an inability to act effectively for the time being (for the purposes of section 44(5)), and prompt the court to intervene. We understand that Gerald Metals is being appealed, so some of these issues may be resolved at the appeal stage.

For further details see Gerald Metals SA v The Trustees of the Timis Trust and others [2016] EWHC 2327 (Ch), referred to in Legal update, LCIA emergency arbitrator provisions limit court's power to grant freezing injunction in support of arbitration (English Commercial Court).

Another case to generate much debate in the arbitration community this year was the decision of the Commercial Court in W Ltd v M SDN BHD [2016] EWHC 422 (Comm), to dismiss an application to set aside an award under section 68 of the AA 1996, on the ground of the arbitrator's apparent bias.

The applicant relied on the fact that the arbitrator was a partner in a law firm that had provided legal advice to (and received substantial remuneration from) an affiliate of the claimant. According to the applicant, this breached a provision of the Non-Waivable Red List of the IBA Guidelines on Conflicts of Interest 2014.

Knowles J held that the evidence did not establish apparent bias. In considering the IBA Guidelines, he noted that there were some weaknesses in the drafting of the Non-Waivable Red List. In particular, the IBA Guidelines appeared to contemplate an assumption of bias in circumstances where a close examination of the evidence would be more appropriate. Furthermore, it was difficult to see why the circumstances of the present case should not be waivable by the parties, if disclosed.

As highlighted in Blog post, The IBA Guidelines on Conflicts of Interest: evolution not revolution, this decision is in stark contrast to the position taken by the French Cour de Cassation in Cour de Cassation, Civ. 1, 16 December 2015, N°D14-26.279. In that case, the court ruled that the sole arbitrator's failure to disclose his firm's role in a transaction involving the parent company of one of the parties to the arbitration caused doubt regarding the arbitrator's independence and impartiality and, therefore, refused enforcement of a partial award.

These cases demonstrate the differing views that may be adopted transnationally, something practitioners need to bear in mind when considering whether to challenge an award or later, at the enforcement stage.

For further details see Legal update, "Weaknesses" in IBA Guidelines on Conflicts of Interest (English Commercial Court).

In Cofely Ltd v Bingham and another [2016] EWHC 240 (Comm), the Commercial Court allowed an application to remove an arbitrator, under section 24 of the AA 1996, finding that there were grounds that raised the real possibility of apparent bias.

The arbitrator (B) had been nominated by claims consultants, Knowles, and confirmed by the appointing body, the Chartered Institute of Arbitrators (CIArb). Following the decision in Eurocom Ltd v Siemens plc [2014] EWHC 3710 (TCC), in which B had acted as adjudicator and Knowles' approach to adjudicator nominations had been criticised, the claimant (Cofely) requested information from Knowles and B regarding their relationship. Ultimately, it transpired that B had been appointed as either arbitrator or adjudicator in cases involving Knowles 25 times in the past three years, and had derived 25% of his income as arbitrator/adjudicator over the past three years from those cases. However, B had failed to disclose any of that information, which only came to light after protracted correspondence. B failed to respond to a request to recuse himself, and accordingly Cofely applied to the court for his removal, on the ground that circumstances existed that gave rise to justifiable doubts as to his impartiality (section 24(1)(a), AA 1996).

Hamblen J held that B's relationship with Knowles and his failure to disclose it, together with the aggressive and hostile manner in which he had responded to Cofely's reasonable and appropriate enquiries, and its application, raised concerns of apparent bias sufficient to satisfy the requirements of section 24. The judge also highlighted as significant Knowles' approach to the appointment process and the existence of its appointment "blacklist". That list would be important to anyone whose appointments and income depended to a material extent on Knowles-related cases, as was the case with B.

The case also raises the question of whether, in these circumstances, a party is entitled to seek costs from the arbitrator. Cofely and the second defendant, which had been the other party in the arbitration proceedings, both sought their costs from B. Cofely did so on the basis that the application, to which B had been a defendant, had succeeded, and that costs should follow the event in the usual way. The second defendant sought costs on the basis that it was B's conduct that had been found to be at fault: on that basis, so it was argued, the second defendant should receive its costs since it had stated that its position on the court application was "neutral". The issues are discussed more fully in Blog post, When the kings depart: costs and the removal of an arbitrator, but in brief the court held that, while B was liable with the other defendant for Cofely's costs, B was not liable for the costs of the second defendant.

For further details see Legal update, Arbitrator removed for apparent bias (English Commercial Court).

In National Iranian Oil Company v Crescent Petroleum Company International Ltd and another [2016] EWHC 1900 (Comm), the Commercial Court dismissed a challenge to an award under sections 67 and 68 of the AA 1996, finding that the separability of an arbitration agreement was governed by English law, even though the governing law of the underlying contract was Iranian law. Further, as a matter of English law the arbitration clause was separable from the underlying contract and was, therefore, unaffected by allegations of corruption and bribery in the procurement of the underlying contract.

The case confirms that a choice of a foreign law as the underlying law of the contract will not displace the application of the doctrine of separability under English law. Also, as a matter of English law, there is no public policy precluding the enforcement of a contract procured by bribery (as opposed to an agreement to bribe).

For further details see Legal update, English Commercial Court considers issues of public policy and separability in section 67 and 68 applications.

In HC Trading Malta Ltd v Tradeland Commodities SL [2016] EWHC 1279 (Comm), the Commercial Court dismissed an application for a declaration by the claimant that there was a binding arbitration agreement between the parties. The court held that, while the AA 1996 had not removed the court's jurisdiction to grant relief, as a matter of principle it would not be appropriate for the court to intervene. Alternatively, even if appropriate in principle, the court would exercise its discretion against granting declaratory relief.

The case demonstrates that the court should decline to rule on any jurisdictional issue where a claimant wishes to refer claims to arbitration and is clearly able to commence arbitral proceedings. Instead the claimant should commence arbitration and allow the tribunal to rule as necessary on any jurisdictional issues raised by the respondent.

For further details see Legal update, Wrong in principle for court to make declaration as to tribunal's jurisdiction (Commercial Court).

In Xstrata Coal Queensland Pty Ltd and others v Benxi Iron & Steel (Group) International Economic & Trading Co Ltd [2016] EWHC 2022 (Comm), the Commercial Court demonstrated its pro-arbitration pragmatism in allowing an application under section 79 of the AA 1996 to extend the time limit within which a party could apply to the tribunal under Article 27 of the LCIA Rules 1998. The application was in the context of seeking the correction of an ambiguity relating to the identity of one of the claimants.

When seeking enforcement of an award in the People's Republic of China, the Chinese court refused enforcement because one of the claimants named in the claim form was not a party to the underlying contract or arbitration agreement. By the time the Chinese court had refused enforcement, the time limit under the LCIA Rules for an additional award or correcting an award had expired. While the LCIA was "sympathetic to the claimants' position", it found that, absent an agreement by the parties or an order from the court extending time, the tribunal was functus officio. Knowles J held that there was uncertainty in the award, which impeded the arbitral process. Justice required that that uncertainty be resolved one way or another, and that the claimants have the opportunity to seek that resolution.

Given that the time limit under Article 27 of the LCIA Rules 1998 would almost always expire in practice before the outcome of enforcement proceedings, the decision to grant a retroactive extension of time demonstrates the court's pragmatic approach.

For further detail see Legal update, English court grants retroactive extension of time to enable arbitral process opportunity to "correct itself" and Blog post, Just to clarify: Xstrata Coal and Article 27.1 of the LCIA Rules.

A Court of Appeal decision in April resolved the conflict between two decisions on the test to be applied when deciding whether to grant an anti-suit injunction in favour of a third party enforcing contractual rights. The conflict was between The Jay Bola [1997] 2 Lloyd's Rep 279 and The Hari Bhum (No 1) [2005] 1 Lloyd's Rep 67. In The Jay Bola, the Court of Appeal applied Angelic Grace principles to the effect that, where the basis of the injunction is that the foreign proceedings are brought in breach of a legal right, an injunction will be granted unless there is good reason to refuse it. However, in The Hari Bhum (No 1), the Court of Appeal refused to grant an anti-suit injunction because the foreign proceedings in question were not vexatious or oppressive.

In Shipowners' Mutual Protection and Indemnity Association (Luxembourg) v Containerships Denizcilik Nakliyat Ve Ticaret AS ("Yusuf Cepnioglu") [2016] EWCA Civ 386, the claimant P&I Club had obtained an anti-suit injunction restraining a vessel's charterers from pursuing Turkish proceedings against it, the Turkish proceedings having been brought under Turkish legislation that gives third parties a right of direct action against an insurer. The charterers were not parties to the arbitration clause in the underlying contract of insurance.

Having found that the charterers' claim was subject to the London arbitration clause and choice of English law in the insurance contract, the Court of Appeal upheld the anti-suit injunction. Preferring the test in The Jay Bola, it held that the anti-suit injunction was sought to protect a contractual right and an anti-suit injunction was the only means of protecting that right. An injunction should be granted unless there was good reason not to do so, and it was not necessary to find that the Turkish proceedings were vexatious and oppressive to grant an anti-suit injunction.

Although the Supreme Court has granted permission to appeal, for the time being it is clear that, where a third party seeks to enforce rights that are subject to an arbitration (or jurisdiction) clause, the court will, absent good reason to the contrary, restrain any proceedings brought in breach of that clause on ordinary Angelic Grace principles. It is irrelevant that the third party was not, itself, a party to the original contract, and there is no need for a claimant to go further and establish additional grounds showing that the foreign proceedings are vexatious and oppressive.

For further details see Legal update, Angelic Grace principles apply to anti-suit injunction sought by third party (Court of Appeal).

In Pencil Hill Ltd v US Citta di Palermo Spa (Case BA40MA109) (unreported), the High Court rejected an application to set aside an order enforcing a Swiss award on the ground that enforcement would be contrary to public policy. The underlying contract contained a penalty clause, and was governed by Swiss law. Following an award by the Court of Arbitration for Sport, and upheld by the Swiss Supreme Court, the English court allowed enforcement of the award. HHJ Bird held that the policy in favour of enforcing international arbitration awards outweighed the English public policy of refusing to enforce penalty clauses. Provided that the contract in question did not offend Swiss law, the fact that English law might take a different view of it did not mean that the English court should refuse to enforce an award arising out of that contract.

For further details see Legal update, Enforcement of arbitral award containing penalty not contrary to public policy (English High Court).

The case of LR Avionics Technologies Ltd v The Federal Republic of Nigeria and another [2016] EWHC 1761 (Comm) provided a further reminder of the difficulties of executing an award against state-owned property, highlighting the importance of including an effective waiver of state immunity clause in contracts involving state parties.

In this case, the Commercial Court set aside a charging order made against state-owned premises which were used for the performance of consular activities (such as passport and visa applications). It held that the premises were immune from enforcement by execution for the purposes of the State Immunity Act 1978 (SIA 1978), even though the premises had been leased to a privately owned company (OIS), which carried out the relevant consular activities on the state's behalf.

Males J drew a distinction between recognition or enforcement of an award (which was a proceeding that relates to the arbitration and therefore does not attract immunity) and enforcement by execution on property of the state (which does attract immunity unless the commercial purposes exception in section 13 of the SIA 1978 applies). Even though the award was enforceable against the state defendant, execution against its property was not available because the commercial purposes exception was not engaged. The outsourcing of sovereign functions to an agent, pursuant to a commercial transaction, will not, of itself, engage the exception: the court will focus on the nature of the functions being performed by the agent to determine this issue.

For further details see Legal update, State immunity: outsourced consular activities fall outside "commercial purposes" exception (Commercial Court).