Section 42 of the Arbitration Act 1996 acts as an effective, although rarely used, mechanism to enforce a recalcitrant party to comply with an arbitrator's peremptory order. But how deep into the merits of a peremptory order will a court delve before enforcing it?
In the recent case of Patley Wood Farm LLP v Brake and another, the High Court concluded that although s.42 gives the court discretion as to whether to enforce a peremptory order (i.e., an order that a party comply with a particular order by a deadline which has typically been set following the failure of a party to comply with a procedural order), a court is not required to revisit the merits of a tribunal's decision to make such an order when exercising its discretion to enforce it.
This decision enforces the procedural nature of the court's role in considering a s.42 application and should embolden parties to an arbitration to take recalcitrant arbitral opponents to court without fear that the court will review the merits of an arbitrator's award or order.
The parties had entered into a partnership agreement in 2010. Serious issues arose between them and in April 2012 the claimant commenced an arbitration to dissolve the partnership pursuant to clause 33 of the partnership agreement (the Partnership Arbitration).
In June 2013, the defendants commenced separate arbitration proceedings pursuant to clause 9.4 of the partnership agreement to determine a dispute as to the partnership accounts (none had ever been agreed) (the Bunker Arbitration).
Also in June, the arbitrator in the Partnership Arbitration, Mr Lee, made an award for the dissolution of the partnership and orders so as to supervise its winding up. The defendants did not comply with the orders and applied for a stay of the Award, which the arbitrator rejected.
In July 2013 the claimant commenced court proceedings seeking a freezing order in relation to the defendants' assets and a stay of the Bunker Arbitration. The High Court granted the freezing order, refused the stay and ordered that that the partial final award of Mr Lee and an order for the defendant to pay the costs of its challenge to the arbitration could be enforced in the same manner as a judgment of the High Court. Subsequently, the defendants commenced an appeal of Mr Lee's award and Mr Lee made a peremptory order for the defendants to provide the partnership books and records to the partnership accountant and an accountant he had appointed.
The defendants did not comply with the order. The claimant then brought the present proceedings seeking to enforce the peremptory order pursuant to s.42 (Patley). The claimant also relied on s.40 of the Act (duty to co-operate with the enforcement of orders) and article 26.9 of the LCIA rules (all awards final and binding between the parties) in making its application.
Section 42(1) provides that "the court may make an order requiring a party to comply with a peremptory order made by the tribunal". Although granting the court a discretion, s.42 contains certain preconditions: (i) a party seeking such an order requires the permission of the tribunal (s.42(2)(b)); (ii) the applicant must have exhausted any available arbitral process in respect of failure to comply with the tribunal's order (s.42(3)); and (iii) the person to whom the tribunal's order was directed must have failed to comply with it within the time specified (s.42(4)). If a s.42 order is not complied with, the non-complying party may be held in contempt of court.
The decision in Patley
In Patley the claimant submitted that it had satisfied the requirements of s.42 and the court should therefore enforce the order. The defendants, relying on the decision of Teare J in Emmott v Michael Wilson & Partners Ltd (No 2), contended that the court must be satisfied that it is appropriate to exercise its discretion under s.42 and not merely rubber stamp the order. The defendants argued that, considering its objections to Mr Lee's award (including that Mr Lee did not have jurisdiction to make the award), the court should make no order and adjourn the application to be heard with the defendants' other applications (fixed to be heard in a full hearing before a judge in March 2014), as it would be wasteful to do otherwise.
Smith J granted the claimant's application on the basis that:
1. the claimant had satisfied the procedural requirements of s.42
2. the granting of the s.42 application was appropriate in the circumstances of the Partnership Arbitration and the Bunker Arbitration
3. enforcing the peremptory order was not wasteful even with the defendants' challenge to Mr Lee's Award and
4. the defendants had acted incorrectly in the circumstances - they had not attempted to comply with Mr Lee's order but had failed to take all opportunities to stay the award.
Smith J held that although the exercise of the discretion should not be used as a rubber stamp to enforce a tribunal's order neither was the court required to revisit the award of an arbitrator that was sought to be enforced. Although Smith J did not review the award, he did spend a significant amount of the judgment considering the value of enforcing the order in light of the other proceedings on foot.
In reaching his decision he adopted Teare J's conclusion in Emmott that "judicial interference with the arbitral process should be kept to a minimum … and the circumstances in which the court can properly interfere with or review the arbitral process are limited to those within ss.67 - 69" of the Act.
Smith J cautioned that Emmott, as a first instance decision, was of persuasive authority only and it did not establish a precedent as it related to the exercise of a discretion particular to the facts of that case. Similarly, the determination of the s.42 application in Patley should be treated with the same caution as it depended on the particular circumstances before the court. In the present case, it was important that the claimant was undoubtedly entitled as a partner to the order (allowing it to see the accounts) and that there would be an account whether or not the defendant's appeal succeeded or not (i.e., either the partnership would be dissolved pursuant to the award or annual accounts would be prepared under the Bunker Arbitration).
The court in Patley sought to balance the general principles of the Act (see s.1(a) - (c), specifically (c), which provides that the court should not intervene in an arbitration except as where provided) and the integrity of the arbitral process with the need to not rubber stamp a tribunal's order under s.42 without consideration of the particular circumstances and a reasonable exercise of the court's discretion.
It is clear that a court is not required to rehear or review an arbitrator's decision in order to enforce a peremptory order but that it will consider the circumstances surrounding the application and determine each case on its own facts. Smith J also emphasised the lack of jurisdiction that a court has to rehear or review an arbitrator's decision absent an alternative power to do so (for example, ss.67 - 69 of the Act).
It is clear that the courts have reaffirmed their commitment to supporting the arbitral process and are prepared to enforce orders, where appropriate, without a detailed review of the merits of the award. This represents a positive step for the surety of the arbitral process in England.