Grounds for Challenging Arbitral Awards at the Tribunal

In almost every field of international trade, commerce, and investment, international arbitration has been the primary means of resolving disputes between governments, individuals, and companies.

With its widespread relevance in today’s world, where commercial life necessitates swift and prompt action, international arbitration tends to be the right approach. And many companies already rely on it.

Arbitration is a very straightforward concept wherein the parties in a conflict agree to refer their disagreements, as well as any other conflicts that arise in the course of their business, to the individual whose judgment or expertise is trusted by both parties.

International arbitration is the most widely used means of resolving disputes mainly arising from international trade agreements and international disputes.

Arbitration is the most effective way to reach a definitive, binding verdict without having to go through the formalities of a court. With the popularity of arbitration and the need for such a powerful tool, many lawyers and accountants have formed exclusive groups of arbitration experts. Many countries have begun to change their laws in order to facilitate arbitration. Because of a few disadvantages in the court system that is commonly known, the concept of arbitration was given birth to. Unlike trial court procedures, it is easy for the parties to come to terms with arbitration if they come from civil or common law backgrounds.

 

Nature and Enforcement of Arbitral Awards

1. Domestic Awards

An arbitration award obtained in England or overseas but under an arbitration agreement regulated by English law is considered domestic. As a result of this definition, an award made in England between parties who are neither United Kingdom citizens nor England residents is still regarded as domestic. Again, if the arbitration arrangement is regulated by English law, an award made outside England between parties, one of whom is ordinarily residing in England, is often considered domestic. This is indeed a remedy relying on arbitration’s contractual nature.

It is argued that by agreeing to refer their dispute to arbitration, the parties implicitly agree to recognize and voluntarily give force to the arbitration award. Failure to do so from one party would be a violation or a breach of the arbitration agreement.

 

2. Foreign Awards

Any award that isn’t a domestic award is necessarily a foreign award. An award made outside of England is a foreign award where one of the parties is a non-UK citizen, resident, or company, and the award is regulated by a law other than English law.

In England, there are six different ways to enforce foreign awards. Each of these methods is used in various situations, though more than one method might be available in the same situation. These methods can be categorized as one common law remedy and five statutory remedies.

 

3. Enforcement of Arbitral Awards

An arbitral tribunal’s award is immediately enforceable if it is made under an arbitration agreement. Enforcement proceedings are required if the losing party refrains from complying with the said award. Giving an award the same effect as a domestic court judgment, which serves as the official basis for further execution, is regarded as enforcement. The terms permission to enforce sections 66(1) and 101(2) and entering a judgment of sections 66(2) and 101(3) of the Arbitration Act 1996 have a slight difference.

An application for permission to impose the award can be made to the High Court without giving notice to the respondent. The appeal must be accompanied by written evidence displaying the arbitration agreement as well as the initial award (or copies of it). The submission must also include the applicant’s and respondent’s names and places of residence or service, as well as a statement that the award has not been complied with or the degree to which it has not been complied with as of the date of the application. When permission to execute the award is given, the order granting the permission must be served on the respondent, who must be told that it will appeal to the Court to have the order set aside.

The period for doing so would be 14 days after service of the order, or within such period as the Court may direct if served outside the jurisdiction of the English Courts. The Court of Appeal has found that the right to enforcement under Section 66 of the Arbitration Act 1996 (1996 Act) that applies to declaratory awards where the claimant is trying to determine the primacy of a declaratory award over an inconsistent decision. There is a fair likelihood of primacy being established once the claimant has produced a fair award and settlement agreement to the judge. The responsibility transfers to the respondent, who must give facts demonstrating that the award could not be applied.

 

Reasons and Procedure for Challenging Arbitral Awards

A party can appeal an arbitration award made in England based on significant irregularities in the proceedings that have caused or will cause injustice. Effective and successful challenges, on the other hand, are exceedingly unlikely and rare. There have been 112 challenges for extreme irregularity in the last four years, but only one has succeeded. It is well acknowledged that one advantage in London-seated arbitration is the limited grounds for challenging or appealing an arbitration decision in English courts.

In the local Court, arbitration awards may be challenged or appealed. The grounds for these challenges or appeals, however, are limited (1996 Act).

 

There are three main reasons for when a party may apply to the Court:

1. Substantive jurisdiction (section 67, 1996 Act);

If an appeal is not raised at an early stage, a party can lose the ability to challenge on the grounds of jurisdiction. A tribunal may decide on its procedural authority unless agreed by the parties otherwise (section 30, 1996 Act):

• If there is a valid arbitration agreement between the parties.
• Whether or not the tribunal is correctly constituted.
• What issues have been sent to arbitration under the terms of the arbitration agreement

As a result, the 1996 Act recognizes the Kompetenz-Kompetenz doctrine. A request for such a decision may be made from either party to the tribunal. A party may also apply with the Court, requesting a ruling on the tribunal’s substantive jurisdiction (section 32, 1996 Act). This application, however, can only be made with the written consent of all other parties to the arbitration process or with the approval of the tribunal. Other conditions and requirements must also be met.

The right to object to the tribunal’s jurisdiction could be lost if the objection is raised later than the first step in the process to question the merits of the matter concerning which the tribunal’s jurisdiction is challenged. However, the party objecting may participate in the tribunal’s appointment (section 31(1) of the 1996 Act). If the tribunal is deciding on its jurisdiction, it may do so in one of the following ways (section 31(4) of the 1996 Act):

• A special award for jurisdiction,
• As well as the awards on the merits

A party to an arbitration taken no part may also challenge the tribunal’s jurisdiction by applying with the local courts (section 72). The idea of separability is well-known (section 7, 1996 Act). As a result, just because the agreement of which it forms part is itself invalid does not mean that the arbitration agreement is invalid as well. In this relevance, the arbitration agreement is considered to be treated as a distinct agreement.

 

2. Serious irregularity (section 68, 1996 Act);

A significant irregularity must be one (or more) of the ones mentioned in section 68. The Court must find it to be causing the claimant substantial injustice.

Significant irregularities include:

• the tribunal exceeding its powers;
• the tribunal failing to conduct the arbitration in compliance with the agreed procedure;
• the tribunal failing to comply with all issues before it;
• and the award being won by fraud.

In fact, under English case law, the test of serious irregularity is challenging to satisfy. Several appeals on this basis have been dismissed.

Cameroon Airlines v Transnet Ltd EWHC 1829 Comm was a successful appeal in which the majority of the tribunal changed the method the parties were required to present their case without allowing the parties the chance to deal with the new approach.

 

3. A party can challenge the award based on appeal on a point of law (section 69, 1996 Act;

An appeal on a point of law arising from an award can be brought only if the parties agreed or the court grants approval. Permission is granted only if:

• the decision will significantly impact the interests and rights of the parties;
• the decision was wrong or of general public interest and subject to considerable doubt;
• and it is just and proper to grant permission.

The parties can only agree to waive the right to appeal under section 69, which is typical. For instance, the LCIA and ICC Rules exclude this right. Though, the exclusion must be expressly stated (Shell Egypt West v Dana Gas Egypt EWHC 2097 Comm). An appeal is filed with the Court and must be filed within 28 days of either:

• the date of the award,
• as well as the date on which the appellant was notified of the outcome of any available arbitral procedure of appeal or review.

 

Challenging Arbitral Awards in the UAE

The latest Arbitration Law, Federal Law Number 6 of 2018, governs arbitration proceedings in the UAE and repeals the provisions of the Civil Procedure Code. The reform law introduces a new principle of commencing a separate action to challenge arbitration awards.

Previously, the UAE courts ruled that an appeal to challenge an award should only be considered after a successful party had applied the award for ratification and enforcement. The losing party was barred from bringing independent proceedings in the case.

With the passage of the current legislation, the losing party can now challenge the award incompetent courts, either from the beginning or in reaction to the winning party’s ratification application.

By Article 53(1) of the Law, the party can depend on one or more of the following reasons for setting aside the award, which is equivalent to UNCITRAL Model Law:

• according to the law, an arbitration agreement is null and void;
• at the point of the arbitration award, the party was incompetent;
• neither party could agree;
• failure of either side to attend the proceedings due to a lack of proper notice of an arbitrator’s appointment;
• the arbitration award excludes the parties’ option of law;
• the Arbitral Tribunal’s constitution was not in compliance with the law;
• the award was not issued in a fixed time frame;
• award issues include matters that are beyond the scope of the tribunal’s jurisdiction or that are contrary to the public policy of the jurisdiction in which the arbitration was held.

Procedurally, the motion for setting aside the arbitration award must be filed with the Court of Appeal having jurisdiction over the case within 30 days of receiving the arbitration award.

Any subsequent clause waiving the right to set aside the reward is null and void.

As a result, the losing side will benefit from the current concept in the following ways:

• the Court’s decision shall be final and binding and may only be appealed to the Court of Cassation;
• the Court can set aside the award entirely or in part;
• if the flaw in an arbitration deal is the primary reason for setting aside the contract, the arbitration agreement will remain post the award has been set aside by the Court;
• the Court will extend a time limit of 60 days to rectify the award;
• the proceedings for setting aside may not restrict either party from enforcing the award until the Court decides otherwise.

 

Case Laws:

1. RJ and another v HB ([2018] EWHC 2833 (Comm))

Facts:

• In the case of RJ and others v HB EWHC 2833 (Comm), the English High Court set aside an arbitration award for serious irregularity under section 68(2)(a) of the 1996 Act. Successful s68 challenges are uncommon, which is why this case demonstrates the very high standard for setting aside an arbitral award. The dispute emerged as a result of the parties’ obligations and commitments under merger agreements for RJ’s investment in the banking sector. The parties decided that RJ would lend $75 million in return for a minority stake in a bank (Bank 2) of which HB would controlling interest.
• The merger agreements provided for HB to acquire Bank 2, but there was no share transfer of the requisite shares to RJ. HB claimed that RJ and RJ’s corporate vehicle (L Ltd) were in breach of an obligation to acquire or seek to obtain reasonable, regulatory approval required to approve the transfer. The sole arbitrator, who was unanimously chosen by the parties and duly appointed by the Secretary-General of the ICC, issued a final award, among other things, that RJ is the beneficial owner of Bank 2’s shares.

Challenge:

RJ and L Ltd to the English Court applied to set aside the award, claiming that the decision declaring RJ to be the beneficial owner of the shares in Bank 2 was tainted by a serious irregularity under section 68 of 1996, Act. The claimants have asked that the issues be resolved again, either by a different arbitrator or, instead, by the same arbitrator. RJ and L Ltd successfully claimed that the relief provided, namely a declaration that RJ was the owner of the shares in Bank 2, had not been requested by either party to dispute. This was achieved without giving the parties notice, depriving them of the opportunity to consider or deal with this point.

According to Mr Justice Andrew Baker, the arbitrators’ general obligation of dignity fairness section 33 of the 1996 Act demands that the parties be granted notice and a reasonable opportunity to consider and respond to the new point. The Court further commented that the procedure adopted by the arbitrator in the preparation of the final award was quite unusual, albeit well within his procedural discretion. Still, the three brief exchanges about the beneficial ownership analysis during the oral closing statements were insufficient to put the parties on notice, fairly or otherwise, that the arbitrator may be contemplating such a declaration.

Court Decision:

The Court determined that the sole arbitrator had handled the case on a substantially different basis from the parties’ submissions, had failed to notify the parties of this, and had thereby caused substantial injustice by refusing the parties the ability to discuss the possible outcome. However, parts of the award were set aside and the Court refused to dismiss the sole arbitrator. It was observed that following existing case law on setting aside awards, but where there has been no suggestion that the arbitrators can no longer be trusted, the arbitrator should not be substituted.

 

2. A v B [2017] EWHC 3417 (Comm)

The tribunal’s award was set aside by the English Commercial Court (the “Court”), upholding its jurisdiction, on the basis that the LCIA Rules 2014 do not allow a claimant to initiate a single arbitration under several contracts. Consequently, the claimant’s request for arbitration was rendered null and void. The Court also ruled (contrary to the tribunal’s award) that the respondent had not waived its right to object to the tribunal’s jurisdiction in failure to raise it until shortly before filing its statement of defence. This is an unusual case of an English court setting aside a tribunal’s award. It serves as a timely reminder to parties to agreements involving several similar contracts to consider an efficient resolution of disputes at the contract drafting stage.

Facts:

• B decided to sell two consignments of crude oil to A under two different contracts (the “Contracts”). The contract is regulated by English law and called for arbitration in London under the LCIA Rules 2014. B filed a single Request for Arbitration (the “Request”) in September 2016, followed by a single registration fee, requesting the full purchase amount owed under both of the Contracts.
• A responded, refusing responsibility and arguing that its response should not be construed as submission to the arbitral tribunal’s jurisdiction to consider B’s claim as formulated. A reserved the right to appeal the LCIA’s and any tribunal’s authority and made relevant statements in correspondence with the LCIA and the tribunal. On May 24, 2017, A challenged the tribunal’s authority is contesting the legality of B’s Request, claiming that it purported to assign claims to a single arbitration under both the Contracts. A served its Statement of Defence (the “Defence”) on June 2, 2017, without exception to its jurisdictional challenge.

Court Decision:

The Court concluded that A had not waived its right to object to the tribunal’s jurisdiction by raising its objections too close to the deadline for filing its defence:

• Sections 31 and 73 of the 1996 Act may have been the starting point for determining the period in which A was allowed to object since such clauses are mandatory, and it is highly doubtful that the LCIA Rules were meant to have an effect that materially differs from those provisions.
• Section 31(1) (which states that an exception to the tribunal’s substantive authority “shall be presented by a party not later than the moment he takes the first step in the proceedings”) does not mandate that an objection be rendered as soon as. This closely resembles the corresponding clause of the UNCITRAL Model Law. Section 31(1) only demands that the objection be presented before the Defence.
• The terms “as soon as possible” in Article 23.3 of the LCIA Rules do not enforce a stricter criterion than section 31(1), but they do work to preclude “untimely objections.” While Section 73 of the Act states that a party’s right to object is forfeited if he or she participates in hearings but does not lodge an argument “promptly,” this does not enforce a stricter rule, nor does it cause Article 23.3 to be interpreted as such.

 

3. P v. Q & Others [2017] EWHC 148 (Comm)

Facts:

• The defendant was an applicant in a dispute between a shareholders’ agreement and a joint venture agreement. The LCIA established a three-member tribunal, with the consent of the parties, and a Tribunal Secretary (the “Secretary”) was selected by the chairman (not referred to as a “presiding arbitrator” in this instance because the arbitration took place under the 1998 LCIA Rules).

• The applicant had challenged the LCIA to have the tribunal dismissed. The applicant claimed, among other things, that the tribunal had “improperly delegated” its role to the Secretary. The applicant relied on an email from the chairman that had been forwarded to a paralegal on the applicant’s team by mistake, in which the chairman requested the Secretary’s response to a previous letter from the claimant citing difficulties with the applicant’s disclosure. The petitioner stated that the Secretary’s job should be restricted to administrative duties.
• The LCIA dismissed these claims on the grounds that the Secretary had not been engaged in the decision-making process without proper supervision. Following this decision, the applicant petitioned the High Court to have the co-arbitrators removed on the same grounds that the LCIA had rejected. The application was based on section 24(1)(d)(i) of the 1996 Act, which allows the courts to remove an arbitrator who refused or failed properly to conduct the proceedings.
• In support of this, the applicant requested the disclosure of certain documents, including the co-arbitrators’ or Chairman’s instructions to the Secretary, as well as any correspondence relevant to the Secretary’s role.

Court Decision:

• The application was rejected on two grounds.
• First, it was discovered that the documents requested were not necessarily required for the application to be decided. The Court used the very same test as in the case of non-party requests for disclosure, requiring applicants to establish that disclosure is a “necessary and appropriate response under all the circumstances.” When facing challenges, the Court recognized that arbitrators are not in the same position as other litigants in that they must defend themselves while maintaining the impression of independence and impartiality.
• Second, and more significantly, the Court determined that the materials requested were subject to Locabail immunity because they were part of the tribunal’s “deliberations,” which are confidential under the LCIA Rules. The Court of Appeal had concluded in Locabail (UK) Limited v Bayfield Properties Limited QB 451, that cross-examination or disclosure from a judge may not be sought in the context of a challenge to his or her impartiality. The High Court in P v. Q & Others extended that concept to include “all professional and lay adjudicators,” including arbitrators.
• In that regard, the Court rejected the applicant’s attempt to draw a distinction between documents that revealed the decision-making process and those that revealed the substance of the decision, stating that the process by which the adjudicating body makes its decision is as much a part of the decision-making as the element of the decision and the discussion of the outcome.

 

4. K v S [2019] EWHC 2386 (Comm)

In K v S EWHC 2386 (Comm), the English Court (the Court) dismissed a challenge to a procedural order of the LCIA arbitral panel. The challenge was filed under s68 of the 1996 Act on the grounds of serious irregularity. Still, it was dismissed for failing to meet any of the s68 requirements and for challenging a procedural order instead of an award. The judgment lays forth the parameters within which a section 68 challenge can be brought.

Facts:

• In an arbitration under the LCIA rules which concerned an engineering, procurement, and construction subcontract and alleged breaches of letters of termination, K was the respondent, and S was the claimant. K engaged a forensic accountant as an expert to determine the causes of K’s company failure.  S was substantially to blame for the failure of K’s company, according to the expert analysis, which also included an assessment of the losses.
• An application was filed to the tribunal, and a hearing was held with the tribunal reaching and issuing Procedural Order 5 (PO5) as a result. The tribunal decided that the report advanced a novel claim that was not pleaded or properly pleaded and that it should not be admitted into evidence. Under section 68 of the 1996 Act, K sought to dispute PO5 on the basis of serious irregularity. K claimed that the tribunal’s refusal to accept the expert report into the arbitration proceedings constituted an impermissible exclusion of relevant evidence and a breach of the tribunal’s general duty under section 33, rather than a legitimate exercise of the tribunal’s case management powers under section 34 of the 1996 Act.
• While K did not accuse a failure of due process in the tribunal’s decision-making procedure, it was claimed that the judgment itself resulted in a lack of due process since K was prevented from presenting its argument on lost profits. K asked the Court to direct that the reasons paragraphs in PO5 be set aside or remanded to the tribunal for reconsideration of whether the expert report should be struck from the record. K also requested clarification on the exclusion of evidence from the arbitration.

Court Decision:

The Court decided that K’s reliance on authorities, that section 68 had superseded the previous law of misconduct, and also that section 68 is exhaustive as to what establishes “serious irregularity affecting the… proceedings or the award.” Consequently, the Court ruled that there was no evidence of any irregularity, much alone a serious irregularity. It could also not be maintained that this was an exceptional situation in which the tribunal’s decision was so far from what might be reasonably expected that the Court should intervene. The Court had no cause to interfere with the tribunal’s decision or comment on whether it was right or wrong.

 

5. Xstrata Coal Queensland P Ltd & Anor v Benxi Iron & Steel (Group) International Economic & Trading Co Ltd [2020] EWHC 324 (Comm)

Facts:

• The dispute stemmed from a contract for the selling of coking coal. The award debtor successfully contended that one of the claimants named in the award was not a party to the contract or the arbitration agreement. Hence the award was declared unenforceable in China. The English Court then allowed the award creditors an extension of time under section 79 of the Act to apply to the tribunal for a correction of the award under article 27 of the LCIA Rules.
• The tribunal, on the other hand, denied the award creditors’ application for a correction of the award. The question of the relevant party’s identity had never been addressed during the proceedings and hence was not the subject of any finding in the award. Any application under article 27 is also confined to correction of computational, clerical, and typographical mistakes or mistakes of a similar nature, according to the tribunal. Any later discovery of a contracting party’s identity would constitute an addition to the award, not a mere correction.
• On December 19, 2016, the award creditors filed an application with the English Court challenging the award for serious irregularity under sections 68(2)(f) and 68(2)(c) of the Act. Due to challenges in providing service in China, there was a significant delay at this point. When the matter was finally heard by the Court, it focused on two main issues:
  • whether the application was filed on time, and
  • whether section 68(2)(f) had been engaged.

Court Decision:

As a result, the Court granted the claimants’ application under section 68(2)(f) and had remitted the award to the said tribunal for reconsideration of the parties to the contract. The Court did not see the necessity to deal with the alternative application under section 68(2) due to the successful finding under section 68(2)(f) (c). This is a somewhat uncommon instance of a successful challenge under section 68 of the 1996 Act. The case indicates the English courts’ willingness to deal forcefully with ambiguity or uncertainties in awards that amount to serious irregularities under section 68 of the 1996 Act.