UK: Taking Up The Challenge: Claims For Serious Irregularity Under S.68 Of The Arbitration Act 1996

Last Updated: 28 September 2018
Article by Liz Tout, James Langley and Anisha Patel

The Commercial Court continues to handle a significant number of challenges to arbitral awards seated in England and Wales. Few are successful. Statistics released by the Commercial Court earlier this year confirm that, in 2016, of 31 claims made under s.68, none were successful. In 2017, the number of claims rose to over 50, yet only two were successful. The threshold for a successful s.68 claim remains high, yet this has done little to stem the number of challenges. This article focuses on recent case law on s.68 and what might be done to limit the number of (mostly unsuccessful) challenges being brought.

Key provisions

Section 68 permits a party to challenge an award issued by a tribunal seated in England and Wales for "serious irregularity" causing substantial injustice. The most common examples include:

  • s.68(2)(a) – the tribunal failing to meet its general duties under s.33 of the Arbitration Act 1996 (e.g. the duty to act fairly and impartially as between the parties); and
  • s.68(2)(d) – the tribunal failing to deal with all the issues that were put to it.

A successful challenge will result in an award being sent back to the tribunal for reconsideration (where appropriate) or set aside in whole or in part.

Challenges under s.68(2)(d) of the Arbitration Act 1996

A challenge under s.68(2)(d) will be successful if it meets the following criteria:

  • there was an "issue" within the meaning of s.68(2)(d);
  • the issue was put to the tribunal;
  • the tribunal did not deal with the issue in its award or decision; and
  • this failure of the tribunal has caused or will cause the applicant substantial injustice.

Meaning of "issue"

The court discussed the application of s.68(2)(d) in the case of Orascom TMT Investments v. Veon Ltd [2018] EWHC 985 (Comm). First, it defined the meaning of "issue". To qualify as an "issue" under s.68(2)(d), the matter must be of some materiality to the parties' dispute and must have been put to, but not dealt with by, the tribunal.

This expands on earlier case law, which requires the "issue" to be "fundamental" (A v. B [2017] 2 Lloyd's Rep 1) and "essential" (Secretary of State for the Home Department v. Raytheon Systems Ltd [2014] EWHC 4375). This does not mean that every argument raised by the parties constitutes an "issue". It is simply a point on which the whole of a claim or defence depends. Without its determination, the tribunal's decision on the claims or defences would not be justified (Raytheon).

The "issue" must be put to the tribunal

To meet the s.68(2)(d) threshold, the applicant will need to show the court that the issue was clearly and distinctly put to the tribunal and was not merely a glancing reference (A v. B). The issue may be "put" in a variety of ways; via pleadings, pre-hearing memorials, orally at the hearing or in a post-hearing memorial (Orascom).

Tribunal failed to deal with the "issue"

A tribunal's mere rejection of an issue or argument made by a party does not immediately equate to a serious irregularity causing substantial injustice. For instance, the tribunal may not have dealt with an issue due to its decision on an earlier point in the award, which, in turn, rendered any analysis of the relevant "issue" pointless.

If the tribunal dealt with the issue, how it did so is not relevant to the court's assessment under s.68(2)(d). The aim of s.68 is to support the arbitral process and not interfere with it by conducting a substantive analysis of the tribunal's reasoning in the award. The focus is therefore on due process, not the correctness of the tribunal's decision (Reliance Industries Limited & anor v. The Union of India [2018] EWHC 822 (Comm)).

Tribunal's failure caused or will cause substantial injustice

A challenge under s.68(2)(d) must demonstrate the issue was reasonably arguable and that, if the tribunal had found in its favour on the issue, a different conclusion may have been reached in the award. By doing so, it demonstrates that the tribunal's failure to deal with the issue caused or will cause substantial injustice. Conversely, the challenge will fail if, having dealt with the issue, the award would not have been any different (for example, due to another finding in the award).

Future of challenges under s.68(2)(d)

Recent cases such as Orascom and Reliance Industries support the court's existing position on challenges under s.68(2)(d): the threshold under s.68(2)(d) is high and the court will dismiss s.68 challenges unless the minimum requirements are met. One would expect this to lead to fewer challenges to awards under s.68(2)(d). This aligns with the intentions of the Arbitration Bill's drafting committee, which envisaged s.68 to be "a long stop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected", for instance where "what has happened is so far removed from what could reasonably be expected of the arbitral process".1

Statistics suggest, however, that a challenge under s.68 is currently less of a "long-stop", but closer to a routine consideration in the arbitral process. In this context, it is clear that s.68 challenges need to be screened more efficiently. The point was raised by Cooke J in 2014 in Konkola Copper Mines v. U&M Mining Zambia Ltd [2014] EWHC 2374 (Comm). He stated that the "vast majority of section 68 challenges ... are unfounded and occupy too much of this court's time". Despite the court's inherent power to summarily dismiss challenges which have no real prospect of success under paragraph O8.5 of the Commercial Court Guide, he stated that this power was "unworkable in practice" due to the detailed investigation required.

The limitations of existing court powers and the increasing number of s.68 challenges, the vast majority of which fail, indicate that it may be worth revisiting the scope for challenges to be brought under the Arbitration Act 1996. Although the court in principle has a summary power to dismiss unmeritorious challenges, Cooke J's comments suggest it is reluctant to use it. It is, however, unclear why something akin to Part 24.2 summary judgment could not be applied to arbitration claims with no real prospect of success. Alternatively, a "screening" process could be applied to challenges under s.67 and s.68 such as that applying to s.69 appeals, which requires the court's permission before such claims can be pursued. If England and Wales is to enhance its status as an "arbitration friendly" jurisdiction supporting the finality of arbitration awards, such measures may be desirable.

Footnote

1 Departmental Advisory Committee on Arbitration (DAC) - Report on the Arbitration Bill 1996, paragraph 280.

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