Chapter 16: Preliminary issues

16.1 The resolution of a dispute referred to arbitration often depends, at least in part, on the determination of a question of law which can be isolated from factual issues (e.g., the proper application of a time-bar or the meaning of a contract term). Questions of fact which are commercially determinative of a dispute (or parts of a claim) may also be separated from other issues. The process of dividing issues into discrete procedural stages (most often liability and quantum) is also sometimes referred to as “bifurcation”. Sometimes issues may be bifurcated for reasons of efficiency and practicality even though the first issue to be tried is not determinative of the entire dispute.

16.2 In other cases, though, deciding specified issues at the outset or in separate stages may avoid the need for a much more costly and time-consuming investigation of the evidence or legal submissions. These sorts of question are often referred to as “preliminary issues”. Legally or commercially determinative preliminary issues can be of tactical significance since they offer an opportunity to “make or break” a case at an early stage. As a result, the question of whether the issue raised should be isolated and decided separately may give rise to considerable disagreement. A substantive preliminary issue may be dealt with in two ways:

• the arbitrator may decide it in an award;

• a question of law may be referred to court 1 under section 45 of the 1996 Act.

16.3 Additionally, disputes as to an arbitrator’s jurisdiction often raise questions of law and fact which should normally be decided before the arbitrator proceeds to an award on the merits. Otherwise there is a risk of wasting time and expense on a substantive award which is open to challenge for want of jurisdiction. It is also common for both jurisdiction and liability to be disputed on the ground that there was no binding contract or agreement to arbitrate. This sort of issue may be suitable for a preliminary issue and when an arbitrator is confronted by this situation he must consider how he should comply with his duty to resolve the parties’ dispute fairly and efficiently. 2 The jurisdictional issue will usually be decided by the tribunal under section 30 of the 1996 Act. That ruling may then be challenged in court under section 67. Alternatively, the issue may be decided at first instance by the court under section 32 of the 1996 Act. Means of resolving preliminary points of jurisdiction are discussed in more detail in chapter 6.

16.4 Section 47 of the 1996 Act expressly empowers the tribunal to determine preliminary issues. It provides that:

1. Unless otherwise agreed by the parties, the tribunal may make more than one award at different times on different aspects of the matter to be determined.

2. The tribunal may, in particular, make an award relating –

   to an issue affecting the whole claim, or

   • to a part only of the claim or cross-claims submitted to it for decision.

3. to an issue affecting the whole claim, or

4. to a part only of the claim or cross-claims submitted to it for decision.

5. If the tribunal does so, it shall specify in its award the issue, or the claim or part of a claim, which is the subject matter of the award.

16.5 This provision is also considered in chapter 19. It gives the tribunal a very wide discretion as to whether to determine different issues separately. This power is a counterpart to the tribunal’s duty under section 33 “to adopt procedures suitable to the circumstances of the particular case avoiding unnecessary delay or expense”. Section 47 contemplates the making of final and binding awards on discrete issues (as opposed to provisional awards). 3 A partial award will give rise to an issue estoppel in respect of the matters determined, and the tribunal will be functus officio in respect of those issues. Time for challenging the award will also start to run.

16.6 An arbitrator would be acting properly in proposing that an issue be determined as a preliminary issue. However, he should give the parties an opportunity to make submissions on such a proposal: in LMAA arbitration, the parties are required to consider whether any issue is suitable for determination as a preliminary issue and to provide that information in the standard Questionnaire. 4 The main factor in deciding whether to decide a question separately from other issues is whether this will save time and costs without jeopardising the parties’ right to a fair resolution of the dispute with a reasonable opportunity to put their respective cases. 5 The merits of the preliminary issue may be relevant in this context if its determination will only save time if decided in favour of one party. The tribunal is not bound to follow the approach that would be adopted in court proceedings. 6 The DAC referred to the particular ability of an arbitral tribunal (as opposed to a court) to tailor the procedure of the arbitration to the circumstances of the dispute, thus enabling it to adopt novel ways of dealing with disputes. 7

16.7 The approach taken by the courts does, however, provide a useful guide to the appropriate factors to be taken into account in deciding whether to determine a preliminary issue. In proposing section 47, the DAC referred to the advantages of the case management role of the court in selecting issues for early determination where they may be commercially determinative of the dispute. The Civil Procedure Rules impose a duty of active case management upon a court. The court’s powers of case management should be exercised for furthering “the overriding objective” of “dealing with a case justly” and the parties are required to help the court in furthering this objective. 8 “Dealing with a case justly” includes ensuring that the parties are on an equal footing, saving expense, dealing with the case proportionately, expeditiously and fairly, and allotting a proportionate share of the court’s resources to the case. Save for the last factor, these principles are very similar to the duty of an arbitrator under section 33 of the 1996 Act to act fairly and to adopt procedures suitable to the case to avoid unnecessary delay and expense. They are also consistent with the parties’ duty to do all things necessary for the proper and expeditious conduct of the arbitration. 9

16.8 This climate of active case management favours the use of preliminary issues. However, there is still weight in Lord Scarman’s warning that orders for the determination of preliminary issues are “too often treacherous short cuts, their price can be delay, anxiety and expense”. 10 Similarly, caution is urged in making decisions to try preliminary issues on assumed facts, as this may prove to be a false economy. 11

16.9 Most cases will turn on their particular circumstances but case law gives some useful guidance. A preliminary issue may be regarded as useful even if it would only be decisive if decided in one way. 12 The arbitrator may also be justified in refusing to rule on hypothetical scenarios where the outcome of the evidence is uncertain. 13 As already stated, consideration must be given to whether determining issues on the basis of assumed facts is actually counterproductive. 14 The most common reason for refusing to order the determination of a preliminary issue is where it is inextricably bound up with other extensive factual disputes, so that there is no “knock out” point. 15 Indeed, the Court of Appeal has specifically expressed concern about the trial of preliminary issues relating to points of mixed fact and law. In Dudarec v Andrews, Lord Justice Waller, having quoted Tilling v Whiteman, stated:

what is true of points of law is even more true of points of mixed law and fact. It can of course sometimes be beneficial to try an issue where there is a clear demarcation between it and other issues; that can often be the case in respect of liability being tried separately from damages. To try one issue relating to the quantification of damage, particularly where the quantification relates to the loss of a chance, must stand a very grave risk of being a long way round. 16