Challenges fall under three sections of the Arbitration Act 1996 – 67, 68 and 69. - PowerPoint Presentation

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Challenges fall under three sections of the Arbitration Act 1996 – 67, 68 and 69. Strategising challenges are tricky and need to be given careful consideration. Successful challenges are rare.

Challenges to Arbitration Awards – a sinking feeling

16

th

July 2019

BasicsChallenges can only be brought from arbitration ‘awards’ and not ‘orders’. An award is a ruling that has finality i.e. is one that is not of an interim character such as a procedural order.

Challenges must be brought in the court of the country where the arbitration was seated regardless of whether the governing law was that of another country.

Most countries worldwide follow the UNCITRAL Model Law 1996 and allow challenges if the award is contrary to public policy. England, however, has three grounds of challenge :

Section 67 – Jurisdiction

Section 68 – Serious irregularity during the conduct of arbitration Section 69 – Appeal on a point of lawBringing a successful challenge is difficult.

2

Statistics: How successful have the challenges been?

Section 68 – 3 out of over 100 challenges were successful

2015: 1 successful challenge of 34.

2016: 0 successful challenges of 31.

2017–March 2018: 2 successful challenges of 47.Section 69 – 2015: 20 of 60 permission for appeal granted; 4 successful appeals

2016: 0 of 46 permission for appeal granted; 0 successful appeals

2017–March 2018: 10 of 56 permission for appeal granted; 1 successful appeal

Whilst 274 claims were brought under sections 68 and 69, only 6 of these reported claims were ultimately successful. This is just 2%.

Route I: Challenge to Jurisdiction (Section 67)

Section 67 says:

A party to arbitral proceedings may apply to the court —

challenging an award on grounds that the tribunal lacked substantive jurisdiction; or

for an order declaring an award on the merits to be of no effect because the tribunal did not have substantive jurisdiction.

A party may lose the right to object under section 73 and the right to apply is subject to the restrictions in section 70(2) and (3).

The arbitral tribunal may continue the arbitral proceedings and make a further award while an application to the court under this section is pending.

The leave of the court is required for any appeal from a decision of the court under this section.

Route I: Challenge to Jurisdiction (Section 67)

Challenges under s.67 can be against awards where the Tribunal has either accepted or rejected jurisdiction.

This constitutes a full rehearing i.e. not just a review of the tribunal’s decision. [

GPF GP SARL v The Republic of Poland

[2018] EWHC 409 (Comm)].A court can confirm, vary or set aside the award (in whole or in part).A jurisdictional challenge under s.67 is not the same as one under s.68(2)(b), which permits challenges on grounds that the tribunal has ‘exceeded’ its powers. [

Uttam

Galva Steels Ltd v

Gunvor

Singapore PTE Ltd

[2018] EWHC 1098 (Comm)]

Route II: Serious Irregularity (Section 68)

68 (2) Serious irregularity means —

(a)failure by the tribunal to comply with section 33 (general duty of tribunal);

(b)the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: s.67) (c)failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties

(d)failure by the tribunal to deal with all the issues that were put to it;

[…]

68 (3) If there is shown to be a serious irregularity affecting the tribunal, the proceedings or the award, the court may-

(a)remit the award to the tribunal, in whole or in part, for reconsideration;

(b)set the award aside in whole or in part, or

(c)declare the award to be of no effect, in whole or in part;

[…]

Route II: Serious Irregularity (Section 68)

Grounds are listed in s.68(2) and constitute a failure to conduct proceedings in accordance with the procedure agreed, failure to deal with all issues put to the tribunal, uncertainty as to the effect of the award and on grounds that the award has been obtained by fraud or is contrary to public policy.

The applicant must demonstrate a procedural unfairness in the conduct of proceedings or a defect in the award and prove that the irregularity has or will result in substantial injustice to the applicant.

The irregularity can relate to the tribunal, the proceedings or the award.

There is no serious irregularity under s.68(2)(A) on issues of construction. [

Reliance Industries Limited &

Ors

. v The Union of India [2018] EWHC 822 (Comm)]

The Applicant shall bear the costs of any discontinued s.68 proceedings on an indemnity basis. This disincentivizes the pursuit of s.68 applications without a strong substantive basis. [

Koshigi

Ltd and another company v Donna Union Foundation and another

[2019] EWHC 122 (Comm)]

Who should pay for the substantial injustice caused by the tribunal’s failure to consider a claim properly before it? Surely the tribunal should also take responsibility where a court has been convinced it has made a serious mistake, and offer to deal with a remitted issue without seeking to levy any further fees.

Route III: Appeal on a point of law (Section 69)

Section 69 requires that the Claimants must establish (1) a question of law; (2) on which the arbitrators were obviously wrong (it not being suggested in this case that there is any question of general public importance); (3) which the tribunal was asked to determine; (4) determination of which will substantially affect the rights of the parties; and (5) which it is just and proper for the Court to determine despite the agreement of the parties to have it determined by their chosen arbitral tribunal.

[Reliance Industries Limited &

Ors. v Union of India [2018] EWHC 822 (Comm)]The restriction of appeals to errors of law –

The arbitrators’ findings of fact cannot be appealed, however wrong they may appear to the court to be.

The court will be astute to discern and discourage attempts to appeal what are in reality findings of fact by seeking to dress them up as questions of law.

It is occasionally possible to infer an error of law which is not explicit on the face of the award, but only where a correct application of the law to the facts found would

inevitably

lead to one answer, whereas the arbitrator has arrived at another.

Similar rigour must be applied to the criteria that the tribunal was “obviously wrong”.

Route III: Appeal on a point of law (Section 69)

This is a challenge when there has been an error of law in the award.

This section can be excluded by consent of parties. This can be stated in the arbitration agreement or assumed when parties adopt institutional rules such as the ICC or LCIA rules that explicitly exclude rights of appeal. 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 s.69.

If not excluded, the applicant must either obtain the agreement of all other parties or seek permission from the court.

An application needs to satisfy the Court that there is a question of English law, determination of the question will affect the rights of one or more parties, the Tribunal was asked to determine the question of law, the ruling is obviously wrong or constitutes a question of general public importance,

open to serious doubt,

it is just and proper for the court to determine the question. [

Agile Holdings Corp v Essar Shipping Ltd

[2018] EWHC 1055]

S 69 applies a two stage process - the application of permission to appeal and if permission is granted, the appeal itself. The court hearing the appeal should give considerable weight to the decision of the judge granting leave.

Where it cannot be established that the tribunal has erred in law, a s.69 appeal can succeed merely because it is not clear from the award that the tribunal has answered a question of law correctly. [

Fehn

Schiffahrts

GmbH & Co KG v Romani SPA [2018] EWHC 1606 (Comm)]

Route III: Time for appealing award

In Daewoo Shipbuilding & Marine Engineering Company Ltd v Songa

Offshore Equinox Ltd and another [2018] EWHC 538 (Comm),

the court held that simply applying for a correction will not, of itself, push back the start date for the running of time.

Where a correction or clarification must necessarily be sought in order to be able to bring the challenge to the award itself [pursuant to section 70(2)], then time runs from the date of that type of correction or clarification being made. (“a material correction”)

Recent rare successful challenges

K v A [2019] EWHC 1118 (Comm)Tribunal which proposes to determine a dispute on the basis of an argument not advanced by the parties must give the parties an opportunity to address that argument or risk a challenge to its award.

Ga Hyun-Chung v Silver Dry Bulk Ltd [2019] EWHC 1147 (Comm)

The company against which award was made had ceased to exist at the time the notice of arbitration was filed. The trustee successfully challenged the jurisdiction of the tribunal on the grounds that there was not a valid arbitration agreement, and the tribunal had therefore not been properly constituted. RJ v HB [2018] EWHC 2833 (Comm)

Finding of serious irregularity under s.68 and setting aside of the award does not

ipso facto

entail the removal of the arbitrator. An application would have to be brought under s.24 to remove the arbitrator and have the matter heard before a fresh panel. This,

prima facie

, conflicts with Akenhead J’s suggestion in

Secretary of State for the Home Department v Raytheon

[2015] EWHC 311 (TCC) that the matter would

necessarily

be heard by a fresh panel if the award was set aside on grounds of serious irregularity.

Other relevant sections in the English Arbitration Act, 1996

Section 24 deals with applications to remove an arbitrator. This is only exercised in exceptional circumstances. It requires proof that there has been or will be substantial injustice to one or more of the parties.

Section 73 disallows a complaint from being placed before the court unless it was first presented to the arbitrator(s).

Challenge under Indian Arbitration Act, 1996

India has incorporated UNCITRAL Model Articles and follows it letter and spirit.

Section 34 provides for setting aside of an arbitral award by making an application to the Court, on the grounds stated therein, including pubic policy, which comes with its own challenges (unruly horse)

R

ecent trend of interpretation of “public policy” has been one where the Courts have refused to examine arbitral awards on merits, preferring minimal intervention in the arbitral process.Pre 2015 Amendment – Renusagar, Saw Pipes, Shri Lal Mahal, Westtern

Geco

and Associated Builders.

Post 2015 Amendment – Daichi, MTNL v

Finolex

, NHAI

Landmark Indian Judgements – Section 34

Scope of interference with Arbitral Award in IndiaMMTC Ltd. v. M/s Vedanta Ltd. (

2019

Indlaw

SC 194)Court does not sit in appeal over the arbitral award and may interfere on merits on the limited grounds provided under Section 34(2) (b) (ii) i.e. if award is against public policy of India. An arbitral award may not be interfered if the view taken by the arbitrator is a possible view based on facts. Position changed after 2015 Amendment whereby Explanation 1 was inserted to Section 34(2) and the scope of contravention of public policy was modified to the extent that it now means fraud or corruption in the making of the award etc. In domestic arbitrations, violation of Indian Public Policy also includes patent illegality appearing on the face of the award.

Landmark Indian Judgements – Section 34

MTNL v. Finolex

Cables (2017

Indlaw

DEL 2863)The merits of the award are required to be examined only in certain specified circumstances, for examining whether the award is in conflict with the public policy of India.An award would be regarded as conflicting with the public policy of India if: (a) it is contrary to the fundamental policy of Indian law, or (b) it is contrary to the interests of India, (c) it is contrary to justice or morality, (d) it is patently illegal, or (e) it is so perverse, irrational, unfair or unreasonable that it shocks the conscience of the court.

An award would be liable to be regarded as contrary to the fundamental policy of Indian law if (a) it disregards orders passed by superior courts, or (b) it is patently violative of statutory provisions, or (c) it is not in public interest, or (d) the arbitrator has not adopted a "judicial approach", i.e. has not acted with a fair, reasonable and objective approach, or has acted arbitrarily, capriciously or whimsically, or (e) the arbitrator has failed to draw an inference which, on the face of the facts, ought to have been drawn, or (f) the arbitrator has drawn an inference, from the facts, which, on the face of it, is unreasonable, or (g) the principles of natural justice have been violated.

‘Perversity’ as a ground for setting aside an arbitral award, has to be examined on the touchstone of the Wednesbury principle of reasonableness. It would include a case in which (a) the findings in the award are based on no evidence, or (b) the tribunal takes into account something irrelevant, or (c) the tribunal ignores vital evidence in arriving at its decision.

Landmark Indian Judgements – Section 34

Ssangyong Engineering and Construction Co. Ltd. v NHAI

(

2019

Indlaw SC 544)The wide import given to “fundamental policy of India” in Western Geco and Associate Builders is improper, and not in accordance with the intent and purpose of the amended Sections 34 and 48 of the 1996 Act.

The “fundamental policy of Indian law” to be interpreted as contravention of a law protecting national interest; disregarding orders of superior courts in India; principles of natural justice such as

audi

alteram partem and

“patent illegality” as illegality which goes to the root of the matter, but excluding erroneous application of law by an arbitral tribunal or re-appreciation of evidence by an appellate court.

The Supreme Court exercised its plenary power under Article 142 of the Constitution of India to declare the minority decision as the award between the parties, whilst endorsing the scheme of the Act that if the majority award was set aside, the parties would have to re-agitate their claims afresh before a new arbitral tribunal.

THE ARBITRATION AND CONCILIATION (AMENDMENT) ACT, 2019

Arbitrators to be appointed by the arbitral institutions designated by the Supreme Court or High Court. The Chief Justice of the concerned High Court may maintain a panel of arbitrators in case no graded arbitral institutions are available;

An Arbitral Council of India (ACI) will be constituted as an independent body, for the purpose of grading of arbitral institutions and accreditations of arbitrators

Pleadings to be completed within six months from the date the arbitrator receives notice of appointment;

Awards in matters other than international commercial matters, have to passed with twelve months from the date of the completion of the pleadings;Maintaining confidentiality of the proceedings other than the Award and protect the arbitrator from any other legal proceedings for any action or omission done in good faith in the course of the arbitration proceedings.

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