Challenging arbitration awards: success thresholds remain high

Posted: 05/10/2017

One key reason for choosing arbitration over litigation has always been the perceived finality of arbitral awards. Arbitration rules and agreements commonly provide that awards will be final and binding on the parties. However, where the seat of the arbitration is within England and Wales, the Arbitration Act 1996 (AA 1996) sets out three routes, found at sections 67, 68 and 69, under which an arbitral award can be challenged in the English courts. Two of these (section 67 and section 68) are mandatory provisions which cannot be contracted out of by the parties. Case law shows, however, that the threshold for succeeding under these sections is a high one, and that the courts will not lightly intervene in an arbitration. Recent decisions provide some interesting lessons.

Route one: section 67 - challenging jurisdiction

Under section 67, a party can challenge an arbitral award made by the tribunal on the subject of its own substantive jurisdiction, or an award made on the merits of the claim on the basis that the tribunal did not have substantive jurisdiction. 'Substantive jurisdiction' is defined (in section 82 referring to section 30) as:

• 'whether there is a valid arbitration agreement,
• whether the tribunal is properly constituted, and
• what matters have been submitted to arbitration in accordance with the arbitration agreement.'

Section 67 comes into operation only after an award has been made. It should therefore be viewed as something of a last resort: parties should consider first using other options earlier in the arbitration such as section 31 (challenging the tribunal's substantive jurisdiction at the outset of the proceedings), section 32 (determination of preliminary point of jurisdiction) or section 72 (rights of a person who is alleged to be a party but takes no part in the proceedings).

In Ruby Roz Agricol LLP v The Republic of Kazakhstan [2017] EWHC 439, the claimant sought a ruling from the Commercial Court on the jurisdiction of the tribunal in the underlying arbitration. The claimant had commenced arbitration under the UNCITRAL rules, but the tribunal had made an award finding that it did not have jurisdiction to hear the substantive dispute because there was no valid arbitration agreement between the parties under the relevant investment contract.

Key points were whether the claimant, a limited liability partnership incorporated under the laws of the Republic of Kazakhstan, could be considered a 'foreign investor' (the arbitration clause in question providing for arbitration 'if the interests of a foreign Investor are affected and there is a written objection by such foreign investor to the dispute being heard in Kazakhstani courts') and whether the investment made by the claimant was a 'foreign investment'.

After hearing expert evidence on the question of principles of contractual interpretation under Kazakh law, Mr Justice Knowles determined that a literal interpretation was required and that, under such interpretation, there was no valid arbitration agreement between the parties. Accordingly, the court reached the same conclusion as the tribunal, albeit on partially different reasoning.

The case shows that, in situations where an applicable foreign law must be considered, the court is likely to apply the relevant foreign legal principles strictly in reaching its decision and it will be difficult to persuade it to depart from such principles.

Second route: section 68 - serious irregularity

Section 68 provides that a party to arbitral proceedings may apply to court challenging an arbitral award on the ground of serious irregularity affecting the tribunal, proceedings or award. Section 68(2) sets out nine categories of serious irregularity. The applicant must demonstrate a serious irregularity of one or more of the types listed in section 68(2), and that the irregularity has or will result in 'substantial injustice' to the applicant. If it successfully does so, the court may remit the award to the tribunal in whole or in part for reconsideration, set the award aside in whole or in part, or declare the award to be of no effect in whole or in part. Although section 68 has historically been a commonly deployed route to challenging an arbitration award, successful section 68 challenges remain rare.

The recent case of Symbion Power LLC v Venco Imtiaz Construction Company [2017] EWHC 348 (TCC) does nothing to reverse this trend. Symbion concerned a failed application brought under section 68(d) (alleged failure by the tribunal to deal with all the issues put to it) where the applicant sought an order setting aside or varying the award. The case raises particular issues of interest on the subjects of confidentiality in arbitration and communications between an arbitrator and their appointing party.

Confidentiality

The claimant argued for anonymisation of the section 68 application judgment to protect the parties' identities, and the defendant argued against. Mrs Justice Jefford observed that a distinction is to be drawn between the hearing of such an application and the publication of the judgment: under CPR rule 62.10, the default position is that a section 68 application will be heard in private, but the judgment is another matter. The strong public interest in the publication of judgments, including those relating to arbitrations, must be balanced against the parties' legitimate expectation that arbitration proceedings and awards will be confidential to the parties. The court therefore needed to weigh up the various factors and consider whether either party would suffer real prejudice from the judgment being made public. Here, Jefford J found that the underlying award was already in the public domain and it was unrealistic of the claimant to argue that it had a legitimate expectation of confidentiality in it. She also dismissed the claimant's submission that it would suffer positive detriment if the judgment was published without anonymisation. The judgment was then published on an unanonymised basis.

The Symbion case highlights the tension that exists between the confidential nature of arbitration, and the possibility of the dispute becoming public should an application be made to the English courts in the arbitration proceedings. As a matter of policy, the courts will recognise the strong public interest in publishing judgments in these types of applications in order to ensure appropriate standards in the conduct of arbitrations. If a party to such an application wishes the resulting judgment to be anonymised so as to keep the dispute confidential, they will need to demonstrate that they will suffer real detriment if the parties' details are made public.

Communications

The Symbion judgment is also of note because the court considered the issue of unilateral communications between a party-appointed arbitrator and that party's representative (counsel in this case) which were not copied to the other side. Jefford J stated that "...once the tribunal is appointed, it seems to me wholly inappropriate for one arbitrator to communicate with the party that appointed him without notice to the other members of the tribunal and the other party”. She noted that party-appointed arbitrators do not represent the party that appointed them and they are under a duty, both as individual arbitrators and as a tribunal, to act fairly and impartially. Any such communications give the impression of a close relationship between the arbitrator and their appointing party, and thereby give rise to concerns that that arbitrator may not be acting fairly or impartially. Whether there is in fact any risk of bias will turn on the specific facts of each particular case, but what is clear is that such communications should be avoided.

Third route: section 69 - appeal on a point of law

The final route to challenging an arbitration award is under section 69 - appealing the award on a question of law arising out of it. Unlike section 67 and section 68, parties are free to exclude section 69 (and often do), either in the arbitration agreement or by adopting a set of rules (eg ICC, LCIA) which explicitly exclude any right of appeal. Furthermore, an agreement to dispense with reasons for the tribunal's award will be considered to be an agreement to exclude the court's jurisdiction under section 69.

Assuming that section 69 is not excluded and this route remains open, the applicant must either obtain the agreement of the other parties to the appeal, or alternatively, the leave of the court. As a matter of course, parties would be well advised to attempt to obtain the agreement of the other parties, and only apply to the court for leave should agreement prove impossible, because where the parties have all agreed, the court must hear the appeal.

Section 69(3) provides that leave to appeal will be given only if the court is satisfied:

• 'that the determination of the question will substantially affect the rights of one or more of the parties,
• that the question is one which the tribunal was asked to determine,
• that, on the basis of the findings of fact in the award
• the decision of the tribunal on the question is obviously wrong, or
• the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and
• that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.'

In the case of Enterprise Insurance Company Plc v U-Drive Solutions (Gibraltar) Limited [2016] EWHC 1301 (QB), the parties agreed to certain matters being referred to the court under section 69 and the application duly came before the court. However, Her Honour Judge Moulder found that the consent of the parties to a section 69 appeal did not mean that the court was precluded from examining whether the requirements of section 69 were established in the first place, and she doubted that section 69 allows parties to confer jurisdiction where none would otherwise exist.

In this case, which largely turned on whether procedural orders of the tribunal were 'awards' for the purposes of section 68 and section 69, Moulder J concluded that the requirements of section 69 (and indeed section 68) were not satisfied because the procedural orders in question did not constitute 'awards', as they did not involve the final determination of any issue or claim in the arbitration. The court therefore had no jurisdiction under section 68 or s 69. Moulder J also found that in relation to the section 69 application, there was no error of law that could be appealed.

The case shows us that even where the parties have all agreed to a section 69 appeal, that will not prevent the court from considering the underlying scope of its jurisdiction to hear the application in the first place. Parties therefore cannot expect to 'get round' such difficulties by agreeing to the appeal and thereby avoiding the need to apply for leave of the court.

Approach with caution

Although sections 67, 68 and 69 of AA 1996 provide potential gateways to challenging an award, they remain tricky to navigate and should be approached with caution. Successful applications are the exception rather than the rule. The courts remain, as a matter of public policy, reluctant to interfere with arbitral awards, and with good reason: awards that are 'final and binding' should indeed be final and binding unless justice requires otherwise.

It is for that reason, and to respect the parties' choice of dispute resolution, that challenging arbitral awards is likely to continue to prove… challenging. 

This article was published in New Law Journal in September 2017.

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