English law will remain 'gold standard' despite impact on case law caused by confidential arbitrations, says expert

Out-Law News | 04 Apr 2016 | 2:15 pm | 3 min. read

The law in England and Wales will continue to be regarded as "gold standard" internationally despite the fact that the development of case law risks being stifled by the number of confidential arbitrations taking place in London, an expert has said.

International arbitration expert Michael Fenn of Pinsent Masons, the law firm behind Out-Law.com, said that there are sometimes benefits to businesses of settling disputes through confidential arbitration.

Fenn said that he has seen a rise in the number of disputes between businesses from around the world being handled through the London Court of International Arbitration (LCIA). He said it is common for "substantial Russian contracts" to contain clauses specifying the LCIA as the forum for resolving disputes under English governing law to prevent information coming out into the public domain that could cause the parties "economic, regulatory or political difficulties".

However, Fenn said that he agreed with comments made by Lord Thomas in a recent speech in which the lord chief justice of England and Wales said the widespread use of arbitration clauses by businesses in some sectors had caused "a serious impediment to the development of the common law by the courts in the UK".

Fenn said, though, that he does not think that businesses will start selecting other jurisdictions to litigate in because of a reduction in Commercial Court case law in England and Wales.

"I believe that English law will continue to be considered as the ‘gold standard’ and English governing law and the English Commercial Court will continue to be considered as one of the most attractive, if not the most attractive, forum of law to utilise in order to deal with commercial disputes," Fenn said. "This is particularly so since the massive improvements in the operation of the Commercial Court which has meant that commercial cases are dealt with much more efficiently and cost-effectively than was previously the case."

In the Bailii lecture 2016 (18-page / 349KB PDF) last month Lord Thomas said that "the strength, vitality and agility of the common law" underpins international business. He said there had been a "dramatic" reduction in the number of cases appealed to the courts from arbitration in the past 20 years and that this "reduces the potential for the courts to develop and explain the law". It also hinders "public understanding of the law, and public debate over its application", he said.

"A series of decisions in the courts may expose issues that call for parliamentary scrutiny and legislative revision," Lord Thomas said. "A series of similar decisions in arbitral proceedings will not do so, and those issues may then carry on being taken account of in future arbitrations. Such lack of openness equally denudes the ability of individuals, and lawyers apart from the few who are instructed in arbitrations, to access the law, to understand how it has been interpreted and applied."

"Publicly articulated laws, and precedents, are the basis from which markets and market actors can organise their affairs and business arrangements," he said.

Lord Thomas said that law makers must consider making it easier for appeals from decisions taken in arbitration to be heard by the courts. He said use of existing powers could also be encouraged to "enable the court to give decisions on points of law which arise after the commencement of an arbitration but before the decision", but acknowledged that this could "damage London’s attractiveness as a centre for arbitration". A further option could be to take steps to make litigating through the courts more attractive, he said.

"In retrospect the UK went too far in 1979 and again in 1996 in favouring the perceived advantages for arbitration as a means of dispute resolution in London over the development of the common law; the time is right to look again at the balance," Lord Thomas said.

"There is also a need to examine whether other markets would be prepared to follow the financial markets, to waive arbitration in cases where there were significant points of general interest and to appreciate that not only would their own dispute, in the right case involving legal issues, be better determined in a court but, more importantly, the wider interests of their industry and of the common law in general would be much better served by more issues being resolved in court and the law thus developed and clarified," he said.

Fenn said that one possible route of reform would be to make Commercial Court cases more confidential to attract businesses to resolve disputes via that forum rather than through arbitration and help preserve the development of case law. However, he said it was unlikely that idea would be pursued.

"One possibility would be to have more Commercial Court cases dealt with confidentially with only the judgment entering the public domain and becoming case law," Fenn said. "This would provide some measure of confidentiality and also encourage settlement as if a case settled before it reached trial, then the fact the case was in existence and the nature of the dispute would remain entirely confidential. However, this is unlikely to be a course of action adopted by the court as there is more emphasis being placed on the court for there to be open justice in order to comply with Article 6 of the European Convention on Human Rights."