When Arbitration Does Not Bind


Many commercial contracts have arbitration clauses which are intended to allow disputes to be settled without having to go to court. Such clauses are normally drafted so that the arbitrator’s decision binds both parties to the contract in most circumstances. They are popular as they permit the resolution of disputes without the expense of taking formal legal proceedings.
However, arbitration clauses often become less than popular with one of the parties to the contract if the arbitrator makes a decision they don’t like. In such circumstances, it is not unusual for the ‘loser’ to try to find reasons why the arbitrator did not have the authority to make the decision or why the decision is not binding.
A recent case illustrates that great care should be taken to make sure that an arbitration clause which is intended to be binding actually is binding in law.
It involved a dispute over a cooperation agreement in relation to oil and gas fields. The agreement contained an arbitration clause to the effect that the arbitrator’s decision was ‘final, conclusive and binding’. However, when the losing party sought to appeal the arbitrator’s ruling on a point of law, rather than on a matter of fact, the court ruled that this wording was not sufficient, under Section 69 of the Arbitration Act 1996, to exclude a point of law. To do so, the wording of the arbitration clause must specifically exclude a challenge on that basis.
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Partner Note
Shell Egypt West Manzala GmbH v Dana Gas Egypt Limited [2009] EWHC 2097 (Comm). See

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