Undeniably, London is one of the most popular venues for international commercial arbitration for both domestic and international parties. This can be attributed to its accessibility and enforcement measures and, to some extent, the clear aim of the English Arbitration Act 1996 (the 1996 Act) to limit challenges and appeals against arbitral awards. The finality of arbitral awards is one of the oft-cited attractions of arbitration. Yet, despite the clear intent of the 1996 Act, there is no obvious indication that such challenges are reducing. Whether or not this should deter parties who choose to arbitrate in London in the expectation that their award will be ‘final and binding’ depends, not so much on the number of challenges brought, but on the judiciary’s tolerance and handling of such challenges. The 1996 Act provides clear guidance for the judiciary to monitor and perform a balancing act between arbitrator discretion and procedural fairness in arbitration. This article examines the scope for challenging awards under subsection 68(2)(d) by reviewing recent case law and concludes by suggesting that the courts’ handling of these cases reinforces London’s enviable reputation as the preferred commercial arbitration centre.
Scope for Challenge
The 1996 Act provides limited routes by which an award can be challenged or appealed. These include challenges to a tribunal’s substantive jurisdiction under s67; challenges to an award based on serious irregularity under s68; and appeals on a point of law under s69. Sections 67 and 68 are mandatory provisions and cannot be excluded by agreement between the parties. Section 69, however, can be excluded by parties contracting out of the right to appeal on a point of law.
Section 68: serious irregularity
Challenging a tribunal’s award under this section is no easy option. An applicant can challenge an award under s68 on the ground of ‘serious irregularity affecting the tribunal, the proceedings or the award’. The party seeking to invoke s68 must do so within 28 days of the date of the award (s70(3) 1996 Act). Before making its application to court, the party must exhaust all available appeals or reviews. Additionally, it must give the arbitrator the opportunity to correct the award (for example, under s57 (correction of award or additional award)) and must be able to show that it has suffered ‘substantial injustice’. The fact that a technical breach will not suffice, clearly sends a message that a challenge on this ground is only intended to be available in cases where the arbitral procedure has so far departed from what might reasonably have been expected as to justify the corrective intervention of the court (see Conder Structures v Kvaerner [1999]).
Lesotho Highlands Development Authority v Impregilo SpA & ors [2005] is a leading case under section 68, where the scope of challenge was examined at length by the House of Lords. This section sets out a closed list of types of irregularities, and arbitral discretion is to be exercised in the shadow of it. In this article, we are particularly concerned with the type of irregularity listed at s68(2)(d): failure to deal with all the issues put to it.
Failure to deal with all the issues put to it
It is trite law that a final award must deal with all the issues put to the tribunal. This does not mean dealing with each and every point in dispute, but rather those issues that the tribunal has to resolve. The issue not dealt with must be capable of causing ‘substantial injustice’ to one or all of the parties.
Colman J in World Trade Corporation v C Czarnikow Sugar Ltd [2005] observed that this section was ‘designed to cover those issues the determination of which is essential to a decision on the claims or specific defences raised in the course of the reference’. This subsection is therefore:
‘… concerned with a failure… where the tribunal has not dealt at all with the case of a party so that substantial injustice has resulted… In the former instance the tribunal has not done what it was asked to do, namely to give the parties a decision on all issues necessary to resolve the dispute or disputes (which does not of course mean a decision on all the issues that were ventilated but only those required for the award).’ (Weldon Plant v Commission for the New Towns [2001])
It is important to differentiate between a failure to deal with an issue and a failure to provide any or any sufficient reasons for the decision. Additionally, the ‘issue’ must have been ‘put to’ the tribunal. Failure by the tribunal to deal with ‘all the issues that were put to it’ constitutes a procedural irregularity (see Margulead Ltd v Exide Technologies [2004]).
Due to the extremely high threshold, it is not surprising that so few challenges to arbitration awards under this subsection have been successful. It will therefore be of interest to note that very recently the Commercial Court saw two such successful challenges within days of each other. These cases send a clear message to arbitrators that someone is indeed watching and subsection 68(2)(d) empowers the judiciary to tell arbitrators, ‘festina lente’.
Recent case law
The challenge in Van der Giessen-de-Noord Shipbuilding Division BV v Imtech Marine & Offshore BV [2008] arose from a highly complex arbitration. This was a challenge to the tribunal’s third partial award. The parties are both Dutch companies who chose London as the seat of arbitration and the 1996 Act as the procedural law. The parties also agreed to the applicability of Dutch law, in particular the Dutch Civil Code for calculation of interest.
The unusual thing about the arbitration clause was that it provided for two arbitrators and only in the event of disagreement was an umpire to be appointed. Accordingly, the arbitration proceeded with only two arbitrators.
The hearing involved 17 volumes of pleadings and over 80 lever-arch files of documents for the hearing bundles. However, the award was comparatively short, with the arbitrators providing that:
‘The parties’ submissions and the evidence and documents provided to support the parties’ cases are extensive in the extreme and for us to address each and every point raised by the parties would be impracticable and therefore we have confined our reasons to the essentials only.’
The appellant (Van der Giessen) argued that the shortness of the award resulted in the tribunal failing to address critical issues and defences raised by it, thus causing it substantial injustice.
The respondent (Imtech) had agreed with Van der Giessen to carry out the electrical installation for a Ro-Ro passenger vessel which Van der Giessen was building for a third party. Imtech had brought a claim against Van der Giessen under the agreement for the value of extra work carried out, an extension of time and for payment in respect of delay, disruption and acceleration. Van der Giessen subsequently counterclaimed and the claim was referred to arbitration.
In its award, the tribunal found in favour of Imtech, having stated that it had confined its reasons to the essentials only as it had been impracticable to address each and every point raised by the parties. Van der Giessen challenged the award under subsection 68(2)(d) for failure by the tribunal to address critical issues and defences and that that omission had caused it substantial injustice. It challenged, inter alia, the simple interest awarded to Imtech at the rate of 10% on the total sum awarded, which was not in accordance with the Code of Conduct of the Dutch Bar; the tribunal’s failure to deal with a defence of waiver/estoppel raised and relied upon by Van der Giessen; double-counting in relation to additional works; and variations procedure agreed between the parties.
Christopher Clarke J, while finding for Van der Giessen for the substantial injustice caused to it, stressed that the power to set aside an arbitration award in whole or in part was to be used sparingly. It was not available simply because the tribunal had made a mistake of fact or law or because the arbitrators had not dealt with all of the points made or arguments advanced or set out each step by which they reached their conclusion. However, the tribunal was not required to forsake brevity in order to avoid a charge of failure of duty. The judge found that the tribunal had not complied with its general duty of fairness as it had not explained why it had chosen to award interest at 10% as opposed to any other figure recognised by the Code of Conduct of the Dutch Bar. Additionally, the tribunal’s failure to deal with the issue as to process concerning variation to the contract amounted to a serious irregularity. The tribunal was also wrong to ignore the parties’ agreed position as to the extent of a claim for additional works, as it awarded Imtech more than it had asked for, and had thereby caused Van der Giessen substantial injustice by that ‘double-counting’. Similarly, a failure to address the waiver/estoppel issue meant that the tribunal had failed ‘to deal with all of the issues put to it’ and had thereby acted in a way which was unfair. Accordingly, the tribunal’s award in relation to those four issues had been affected by serious irregularity and the parts of the award relating to those issues had to be set aside. In remitting the award back to the tribunal, the judge required it to also appoint an umpire.
The second case, Metropolitan Property Realizations Ltd v Atmore Investments Ltd [2008], is unusual in that the appellant had not ‘put to’ the arbitrator the issue that it now sought to rely on. Nevertheless, the judge found that the arbitrator’s conduct amounted to a ‘serious irregularity’ causing the appellant ‘substantial injustice’ because the arbitrator had failed to deal with the basic issue that he had himself identified. Sales J upheld the appellant’s application under subsection 68(2)(d) of the Act, and granted an order remitting the arbitration award back to the arbitrator for re-determination on the basis of a ‘serious irregularity’.
In this case, the appellant (Metropolitan) challenged the sole arbitrator’s decision in a rent review arbitration. Metropolitan was the tenant of a property owned by the respondent landlord, Atmore Investments Ltd (Atmore). It is common practice for arbitration to be the prescribed method in leases and other property documents whereby property-related disputes, particularly rent reviews, are resolved.
The underlease granted to Metropolitan was for a period of 99 years and provided at clause 1(d) that the rent reviews should take place every 21 years. Clause 19(d) also set out the formula to be applied on each rent review. Clause 2 of the underlease provided that the rent payable should be the greater of:
- ‘a rent equal to the rent payable during the last preceding rent period: and?
- ‘a rent equal to six-elevenths of the yearly rent value of the demised premises as at the last quarter day but one before the end of the last preceding rent period.’
It was common ground between the parties that in assessing the fair yearly rent of the premises, they should ignore the six-elevenths calculation.
In September 2006 the second review fell due. Failure by the parties to agree the amount of the yearly rent value meant that the matter fell to be determined by arbitration. There was no hearing held and the arbitrator made his award with reference to written submissions. The parties made their submissions as to the approach to be adopted for the valuation of the rent. However, what Metropolitan failed to notice was that Atmore’s submissions did not allow for an element of profit when calculating the new rent and failed to give evidence before the arbitrator on this point, a point which the arbitrator himself had accepted was relevant to his determination.
In his award, the arbitrator rejected submissions put forward by Metropolitan’s counsel and preferred the approach put forward by Atmore’s counsel. Following the award, Metropolitan appointed new counsel and subsequently challenged the award under s68 of the 1996 Act on the grounds of serious irregularity for failure by the tribunal ‘to deal with all issues that were put to it’ (subsection 68(2)(d)). Metropolitan’s new counsel criticised the arbitrator’s reasoning for accepting Atmore’s submissions without allowing for an element of profit in respect of the lease.
In the light of the fact that Metropolitan had failed to raise this point in its submissions, even as a fall-back, alternative case, Atmore’s counsel argued that the Court should not intervene as there had been no ‘serious irregularity’ on the part of the arbitrator resulting in ‘substantial injustice’ to Metropolitan. Atmore’s counsel further submitted that Metropolitan should have applied to the arbitrator under s57 of the 1996 Act to correct or clarify the award, and that having failed to do so it was prevented by operation of s70(2)(b) of the 1996 Act from applying to the Court under s68. The relevant parts of s70 provide:
‘70 Challenge or appeal: supplementary provisions
- The following provisions apply to an application or appeal under section 67, 68 or 69.
- An application or appeal may not be brought if the applicant or appellant has not first exhausted:
- any available arbitral process of appeal or review; and
- any available recourse under section 57.’
Sales J, while accepting that the court should not read an arbitration award ‘with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults’ (Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985]), did not accept Atmore’s submission that subsection 68(2)(d) did not apply to justify the Court’s intervention if there is ‘a glaring illogicality contained in the central reasoning in an award’. Sales J found that the arbitrator’s award was obviously flawed as a matter of commercial logic for failure to identify the amount of profit appropriate and failure to allow for an element of the profit in the calculation of the yearly rent, which he had himself identified as a relevant factor to be taken into account. This failure by the arbitrator fell within subsection 68(2)(d) for causing substantial injustice which may cause Metropolitan substantial financial detriment.
Sales J also rejected Atmore’s argument on the section 57 point, stating that the error was clearly not a typographical error amenable to correction, nor was it a matter of ambiguity or lack of clarity in the award. The award was founded on an error of reasoning and was remitted back to the arbitrator for a re-determination.
Conclusion?
The above cases add some practical insight to the already fertile source of authority under this subsection and underpin the clear intent of the 1996 Act. In remitting the award back to the tribunal in Van der Giessen, the judge emphasised the desirability of having an umpire in case of disagreement between the arbitrators. The fact that there were only two arbitrators for such a complex arbitration suggests that they may have felt pressured to agree on as many issues as possible resulting in a comprise of their ability to produce a just and fair award.
The Court’s determination in Metropolitan is instructive in that a failure to consider issues not raised by either party can make an arbitration award subject to challenge. An arbitrator should be alive to the fact that issues they openly raised as relevant to the determination cannot be overlooked at the time of rendering the award. The judiciary’s handling of these two cases lends credence to London’s claim as a world centre for arbitration.
By Rukia Baruti, legal executive, SJ Berwin LLP.
E-mail: rukia.baruti@sjberwin.com.
Rukia is a member of the Chartered Institute of Arbitrators.
Conder Structures v Kvaerner [1999] ADRLJ 305
Lesotho Highlands Development Authority v Impregilo SpA & ors [2005] UKHL 43
Margulead Ltd v Exide Technologies [2004] EWHC 1019 (Comm)
Metropolitan Property Realizations Ltd v Atmore Investments Ltd [2008] EWHC 2925 (Ch)
Weldon Plant v Commission for the New Towns [2001] 1 All ER (Comm) 264
World Trade Corporation Ltd v C Czarnikow Sugar Ltd [2005] 1 Lloyd’s Rep 422
Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] EGLR 14
