UK: Challenging An International Arbitration Award Under The Arbitration Act 1996. What Has Changed?

Last Updated: 15 July 1997
(First published in In House Lawyer, June 1997)

What has changed?

One of the prime objectives of the new Arbitration Act was to reduce the extent to which courts might become involved in an arbitral procedure. Prior to the introduction of the Act, English courts had been viewed abroad as too 'interventionist'. A concern often encountered was that London stood to lose out in the increasing competition between arbitration venues around the world because parties could not rely on English courts not to interfere in a private dispute resolution process. International parties, it was feared, might prefer to conduct their arbitration in places where the courts were less willing to intervene.

Assurance that local courts will not involve themselves in an arbitration is especially important to international parties and is often one of the key determinants in their choice of a place of arbitration. Excessive court involvement defeats the goals and purposes of the parties' initial decision to arbitrate their differences. They lose the advantage of confidentiality. The extra proceedings result in greater costs. Most importantly, parties who sought to avoid the courts by entering into an arbitration agreement are required to deal with a foreign legal system and rules of procedure with which they are not familiar.

One of the principal ways in which a court becomes involved in an arbitration is to hear challenges to an award after it is rendered. A party who is unhappy with an arbitral award can challenge it in two ways. It may decide to attack the award by applying to the court to set it aside, remit it or to declare it to be of no effect. Or, a dissatisfied party may choose not to attack the award, but simply resist efforts by the successful party to enforce it. In either case, the new Act has greatly reduced the possibility for court intervention and the chances of a successful challenge.

This has been achieved by limiting the grounds for challenges, by raising the threshold of error reviewable by a court, by prohibiting the parties from raising objections at the challenge stage that were not raised before the arbitral tribunal and by limiting the time in which a party might raise objections after which they will be deemed to have lost any rights to rely on them. The overall effect of such changes is to increase the finality of arbitral awards.

Section 66: challenge at the time of enforcement

Section 66 provides that enforcement of awards shall be refused where the court is satisfied that the arbitral tribunal lacked jurisdiction to make the award. The precise nature of the grounds available under this section is not set out. However, it is likely that a party may argue that it was never party to the arbitral proceedings, that it was wrongly joined, that the arbitrator decided matters that were not within the scope of the submission, or that the decision did not apply the law chosen by the parties.

Much broader grounds are available to challenge the enforcement of an award in England where the award is rendered abroad. Section 66 gives effect to the provisions of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards which are re-enacted at s103 of the Act. Parties are allowed to rely on a limited number of grounds to resist awards. Recognition or enforcement by a court 'may' be refused where a party to the arbitration agreement was under some incapacity, where the arbitration agreement was invalid, or where a party did not have proper notice of the proceedings or was otherwise unable to present its case.

A New York Convention award which exceeds the scope of agreed matters to be submitted to arbitration or which was rendered by an arbitral tribunal not appointed in accordance with the parties agreement or the law applicable in the place of arbitration, may also be refused enforcement. If the award has not yet become binding on the parties or has been set aside in the country in which, or under the law of which, it was made, enforcement can be resisted. A Convention award may also be refused recognition or enforcement if it has decided a matter which is not capable of settlement by arbitration or if enforcement would be contrary to public policy.

Section 66 also provides for awards to be enforced by action on the award. This procedure will be available for foreign awards not covered by the New York Convention.

Section 67: challenge on the grounds of jurisdiction

Instead of waiting to resist enforcement of an award under Section 66, a party may wish to bring an application before court to challenge an arbitral award. Section 67 allows parties to bring such an action on the same grounds as s66.

However, under the Act it is more necessary than ever before to raise objections to jurisdiction promptly on pain of losing such rights to object. Both sections 66 and 67 alert parties that they may lose their rights to object to awards on such grounds. The purpose of these provisions is considerably to reduce the scope for making such challenges before the courts and to encourage parties to seek to have them resolved by the arbitral tribunal. A party who takes part in arbitral proceedings is now required to raise objections to a tribunal's jurisdiction 'forthwith or within such time as is allowed by the arbitration agreement or the tribunal...' (s73(1)). Failure to raise objections in a timely manner will mean that such objections cannot be raised later either before the arbitral tribunal or a court.

Section 68: applications for remission or setting aside

Before the new Act, it was possible to attack awards for 'misconduct' by an arbitrator. This test has now been changed to 'serious irregularity'. In addition to being a more difficult criterion to satisfy than 'misconduct', 'serious irregularity' has been exhaustively defined by the Act in order to reduce unpredictability.

Before it will even consider such applications, a court must be satisfied that the alleged irregularity 'has caused or will cause substantial injustice to the applicant'.

Serious irregularity is essentially concerned with ensuring procedural fairness. It covers any failure by the tribunal to comply with its duties under s33 of the Act. Those duties include the fair and impartial treatment of the parties, the duty to allow each party a reasonable opportunity to be heard and the adoption of procedures suitable to the circumstances of the particular case.

A tribunal which exceeds its powers or which fails to conduct the proceedings in accordance with the agreed procedure may be held to have committed a serious irregularity. An award may even be challenged on the grounds that the arbitration institution, under whose auspices the proceedings are organised, exceeded its powers. A failure by a tribunal to deal with any issue put to it or the rendering of an award that is ambiguous or uncertain or which does not comply with requirements of form may likewise be grounds for a challenge under s68.

Serious irregularity also means that an award must not be obtained by fraud or other means contrary to public policy. It will encompass as well any irregularity admitted by the tribunal or by the administering institution.

Section 69: appeals on points of law

The new Act retains a right of appeal to the courts on questions of law, but severely restricts the circumstances in which such an appeal might be allowed. The right arises only with respect to arbitrations where the seat is in England and Wales or Northern Ireland and where English law is applicable to the merits. This right to appeal will not be available to parties to an arbitration in a foreign jurisdiction even where the law applicable to the merits is English law.

Again, the enumerated conditions for a successful challenge are very difficult to meet. The point of law must be considered to have a substantial effect on the rights of at least one parties. It must be one that was already raised before the arbitral tribunal. The court must be satisfied that the point of law has obviously been wrongly decided by the arbitral tribunal or that the issue raised is one of general public importance and there is 'serious doubt' about whether the point of law was decided correctly. In addition to all of these considerations, the court must be convinced that it is 'just and proper' to intervene.

The provisions for appeals on a point of law are not mandatory. Rights to appeal under s69 can be excluded by the parties in an arbitration clause. In fact, where the parties instruct the arbitral tribunal not to give reasons for its award, or where they ask the tribunal to decide the matter as amiable compositeur or according to its own best judgement of what is fair, rather than in accordance with the letter of the law, they will be considered to have waived their rights to appeal on questions of law.

Strict conditions are imposed for the exercise of any of the appeals discussed above. They must be brought within 28 days of the award. An applicant must also first show that it exhausted all appeal processes available pursuant to the arbitration agreement or recourse under s57 of the Act for correction of the award or any additional award.

This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.

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