Part(1)

In choosing to submit contractual disputes to arbitration rather than litigation the parties in this instant decided to resolve their dispute by an arbitration tribunal in lieu of going to courts. The consideration in the minds of the parties when taking such decision, as to almost all other agreements, is the finality of arbitration awards where traditionally it has offered the chance to resolve disputed issues with much less expense and faster than litigation in courts with the advantage of the award being voluntarily ‘binding and final’, in most cases.

But in reality, it is very likely that some losing parties will feel that the award was not justly rendered or that there are potential valid grounds for them to challenge the decision delivered by the Arbitration Tribunal.

1.1 Challenging the Award:

Recent decisions by the English courts continue to restate that it will do all it can to maintain the “sanctity” of awards and continue to uphold awards where the findings of the tribunal seem to be reasonable and that the arbitrators award might be unimpeachable despite some inaccuracies on the face of it such as in the choice of words.[2]

The 1996 Act provides limited grounds by which awards can be challenged under S.67 and S.68 or appealed on a point of law under S.69.

Sections 67 and 68 are mandatory provisions and cannot be contractually excluded by the parties.

However, the courts’ power to hear appeals under S.69 are not mandatory and parties may contract out of it.

In Zermalt Holdings SA v. Nu-Life Repairs Ltd[3] where Bingham J. expressed a general guidance of how courts should view arbitration and awards:

“…as a matter of general approach the courts strive to uphold arbitration awards. They do not approach them with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults in awards and with the objective of upsetting or frustrating the process of arbitration. Far from it, the approach is to read an arbitration award in a reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault that can be found within it.”

As evidenced by recent amendments of Arbitration Laws, there was a trend in favour of limiting court involvement in arbitration.

The court can intervene when:

  • there is a provision in The Act; and
  • in exceptional circumstances to prevent a substantial injustice.[4]

These provisions seem justified due to the fact that the collective opinion of the parties to arbitration in their agreement was a conscious decision to clearly exclude court protracted battles in favour of the expediency and finality of arbitration.

In this spirit, the view in England after the Arbitration Act 1996 is that if arbitration can easily be challenged; there is a high risk of it becoming a pre-litigation warm-up and a tactic of delay to put financial pressure on the aggrieved party as well as being contrary to parties’ objectives of speedy dispute resolution. [5]

It is inevitable that a litigant who lost the arbitration will feel that the arbitrator/s was not correct and he was a victim of a misjudgement. A feeling that is usually strengthened by hopeful legal advisors, whom upon their advice, the losing party will pursue correction of assumed misjudgement in appeal.

It is very unlikely that judges or arbitrators are foolproof and challenges to arbitration awards should always be given the consideration and scrutiny it deserves with all the additional costs and inevitable delays that it will suffer.

Presently and within The Arbitration Act 1996, English Courts are quite supportive of the arbitral process and they will look for evidence of injustice or prejudice to the appellant’s benefit in cases decided on the merits and any procedural matters are discounted.

However, The Act aims to preclude spurious applications to the courts that may delay and increase costs of the proceedings before and after the award.[6]

Courts will also respond with adverse costs orders if they consider that there were frequent unfounded applications in order to frustrate or delay proceedings.[7]

The ability to appeal on the merits is less recognisable and there are considerable limitations for litigants to appeal on these grounds.[8]

Arbitration is a private process and for that very reason it is placed outside the sphere of Judicial Review.[9]

However, leave to appeal is required in respect of litigations but not to challenge an arbitral award. Leave is required to challenge the court’s decision in respect of the challenge.[10]

It was held, until recently, that the Court of Appeal cannot interfere with a Court’s decision on whether or not to grant leave to appeal on a point of law.[11]

This view was reversed by the Court of Appeal’s decision in North Range Shipping where the Court envisaged that “it could have a residual jurisdiction to intervene where the judge had in truth never reached a decision at all on the grant of refusal of leave but had reached his conclusion through bias, chance, whimsy or personal interest”.[12]

An appeal from the decision of a court to the Court of Appeal can be made only with the permission of the court of the first instance. However in real practice this permission is rarely granted for the same reason that courts are discouraging challenges to arbitral awards and allowing very restricted channels for it. [13]

1.2 Grounds for Challenging Arbitral Awards:

The Arbitration Act 1996 imposed three grounds for challenging arbitration awards rendered in England:

  1. Lack of Substantive Jurisdiction – S.67
  2. Serious Irregularity – S.68
  3. Error on a Point of Law – S.69

Rules on the enforcement of International Arbitral Awards are set out in S.100, 101, 102 1nd 103 of the Act.

There are no supplements in common law for these rules and challenges are not considered unless based on these rules and the procedures prescribed thereof in the Act.[14]

There are further sections which are common to s.67, 68 and 69 that are mandatory and cannot be excluded by parties’ agreement:

S.70 (3): includes a restriction that an appeal or challenges have to be presented within 28 days from the date of the award or if the agreement stipulates that other challenging processes must be followed before applying to the court, the 28 days limitation will run from the date the parties are informed of the end of the arbitral procedures.

S.70 (4) the Arbitrator may be requested to present to the court additional reasons for his award.

Also the court may require from the losing party (the appellant in this case) to pay the full amount of the award or a security to be paid, pending the court’s decision. The court will not proceed without the appellant complying with these requirements.

S.73 a party may lose its right to challenge a decision of the Arbitration Tribunal if it is found to be responsible of unreasonable delays throughout the arbitration. This provision applies to S.67, 68 but not to S.69 (appeals on of point of law).

These points confirm the limitations the Act has placed on courts to intervene in arbitration processes as well as restrictions on parties to try to get courts to do so.[15]

S.67 Challenge for lack of Substantive Jurisdiction:

An Arbitrator’s authority arises from the parties’ agreement and specifically from the arbitration provision in an agreement.

Should an Arbitrator assumes jurisdiction to decide upon a dispute which is beyond the scope of the agreement or in the absence of consent of the parties, express or implied on the appointment of the Arbitrator or to the jurisdiction of the tribunal over an aspect of the dispute, the courts may find a challenge to the award successful.[16]

Challenging an award on jurisdictional basis is provided for in S.67 of The Act although it does not define or regulate the mechanism for the determining jurisdiction (this is left to s.30 – 32) by the courts or the tribunal.

The Act now recognises the doctrine of “Kompetenz-Kompetenz” (la compétence – la compétence) by virtue of S.30:

“…unless agreed by the parties, the arbitral tribunal may rule on its own jurisdiction …”[17]

The doctrine allows Arbitrators to be questioned directly by any of the parties on their jurisdiction.

Traditionally English Law did not adopt the doctrine and usually took the approach that whatever the Arbitrator’s decision was, it was provisional on the parties’ acceptance.

That caused parties to refer questions of jurisdiction to court which encouraged interference by courts in arbitral processes thus slowing it down and increased costs of proceedings.

This section was intended to reflect the DAC recommendations that courts in England should adapt the internationally accepted view of being able to correct serious failures in complying with due process in arbitral proceedings.[18]

The statutory recognition of Kometenz-Kompetenz is a clear move bringing the English Law in line with the Model Law.[19]

The process now is that a party may raise their objection as to the substantive jurisdiction of the Arbitrator with the Tribunal directly and the Arbitrator may rule on the question through an interim award or in the final award as per S.31 of the Act.

Should the party decides to have another jurisdiction on the question of jurisdiction through a third party, then upon notice to the other party and with leave from the Arbitrator an application may be made to the court under S.32 of the Act to determine a preliminary point of jurisdiction.[20]

Remedies for the Court: Upon a successful jurisdictional challenge application under S.67, the court may confirm, vary or set aside the award[21].

S.66(3) provides an earlier ground for any of the parties to object on the ground of ‘absence of jurisdiction’ but by doing so at the early stages, that party will forfeit its right to use the same challenge under s.67 in the event that the award eventually goes against them.[22]

Composed by: Mohamed Raffa, PhD UEL, FCIArb

 

[1] Mohamed Raffa ; Comparative Study : Challenging Awards in Egypt v England, N. Ireland & Wales, Robert Gordon University, 2011

[2] IRB Brazil v. CX Reinsurance Ltd. (2010) EWHC 974 Comm.

[3] Zermalt Holdings SA v. Nu-Life Upholstery Repairs Ltd. (1985) EGLR 14 1985

[4] The Arbitration Act 1996 S.42-45

[5] Jonathan Sacher and David Parker, Sanctity of English Arbitration Awards, Berwin, Leighton Paisner, 18th March 2011

[6] The Arbitration Act S. 79(1), S. 70(2)(a)

[7] Rustal Trading Ltd. v. Gill and Dufus (2000) 1 Lloyd’s Rep. 14

[8] Austin Hall Building Ltd. v. Buckland Securities Ltd. (2001) EWHC TCC 434

[9] O’Reilly v. Mackman (1983) 2 AC 237

[10] The Arbitration Act 1996, S.67 (4), 68(4) & 69(2).

[11] Aden Refinery Co. Ltd. v. Ugland Management Co. Ltd. (1987) QB 650

[12] North Range Shipping v. Seatrans Corp (2002) EWCA Civ405; see also Tweeddale, Arbitration of Commecial Disputes (2007), Ch.28.49 pp.816

[13] Henry Boot Construction (UK) Ltd. v. Malmaison Hotel (Manchester) Ltd. (2000) 3 WLR 1824

[14] Novasen S.A. v. Alimenta S.A. (2011) EWHC 49 (Com.)

[15] Harbour & General Ltd. v. Environment Agency (2000) 1 WLR 950

[16] X ltd v. Y. Ltd (2005) EWHC 769

[17] S.30(1) of The Arbitration Act 1996

[18] The Departmental Advisory Committee on Arbitration (DAC) produced two reports: i) a pre Act substantial report on the Arbitration Bill, in Feb. 1996; ii) a supplementary report on The Arbitration Act 1996 dated Jan 1997. Both reports are used by courts in England & Wales & Northern Ireland for interpreting the provisions of the Arbitration Act.

[19] UNCITRAL Model Law, A. 16: Competence of arbitral tribunal to rule on its jurisdiction.

[20] Deko Scotland v. Edinburgh Royal Joint Venture (2003) SctCS 113

[21] Birse Constructions Ltd. v. St. David Ltd. (2000)

[22] S.66(3) and S.73 of the Arbitration Act