The Removal of Arbitrators/ Challenges and Appeals to awards

ΑΡΘΡΟΓΡΑΦΙΑ / October 15, 2019: Τρέχουσα Νομική Επικαιρότητα NewsRoom

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The Removal of Arbitrators/ Challenges and Appeals to awards

Μελέτη του Βασίλη Αποστολόπουλου, Δικηγόρου LLM, σχετικά με την Διεθνή Εμπορική Διαιτησία.

Πρόλογος

Τα τελευταία 50 χρόνια η Διεθνής Εμπορική Διαιτησία έχει εξελιχθεί σε πρωταρχική μέθοδο επίλυσης εμπορικών διαφορών που εμπεριέχουν ένα διεθνές στοιχείο/σύνδεση, παρά τον αρχικό σκεπτικισμό με τον οποίο ιστορικά αντιμετωπίστηκε.

Σε αντίθεση με τα παραδοσιακά δικαστήρια, η Διεθνής Εμπορική Διαιτησία συνιστά έναν εναλλακτικό εξωδικαστικό ιδιωτικό τρόπο επίλυσης των διαφορών που προκύπτουν από τις εμπορικές συμβάσεις μεταξύ των μερών, που βρίσκονται σε διαφορετικά μέρη του κόσμου.

Στηρίζεται ακριβώς στην έγκυρη συμφωνία των μερών για την προσφυγή στη διαιτησία, η οποία αποτελεί τον ακρογωνιαίο λίθο Βασίλης Αποστολόπουλος, Δικηγόρος LLMτης Διεθνούς Εμπορικής Διαιτησίας. Άνευ μιας έγκυρης, συναινετικής φύσεως, συμφωνίας, η οποία να ορίζει την προσφυγή στις διαιτητικές διαδικασίες σε περίπτωση διαφοράς, τα μέρη δεν υποχρεούνται να προσφύγουν σε αυτήν. Συνεπώς, τα δικαστήρια δύνανται να επιβάλλουν διαιτητικές διαδικασίες μόνο στην περίπτωση που και τα δύο μέρη συναινούν σε μια έγκυρη συμφωνία που να ορίζει τη διαιτησία ως τη μέθοδο επίλυσης τυχόν διαφορών.

Είναι αξιοσημείωτο ότι, το Λονδίνο, εδώ και δεκαετίες, διατηρεί τη φήμη ηγετικού διαιτητικού κέντρου σε διεθνές επίπεδο, αφού πολλές διεθνείς συμβάσεις ενσωματώνουν ως όρο επίλυσης τυχόν μελλοντικών διαφορών την προσφυγή στη διαιτησία στο Λονδίνο.

Όσον αφορά δε το Αγγλικό εσωτερικό δίκαιο, τα δικαστήρια πολλές φορές καλούνται να αναγνωρίσουν και να εφαρμόσουν, με τη μορφή δικαστικής απόφασης Αγγλικού Δικαστηρίου, διαιτητικές αποφάσεις του εξωτερικού.

Ανάμεσα στις διεθνείς συμβάσεις που εξυπηρετούν το σκοπό ενός ενιαίου μηχανισμού εφαρμογής διαιτητικών αποφάσεων που εκδόθηκαν σε χώρες διαφορετικές από αυτές στις οποίες επιδιώκεται η αναγνώριση και εφαρμογή τους, η πλέον σημαντική και κυρίαρχη είναι η Σύμβαση της Νέα Υόρκης 1958. Η τελευταία διαπραγματεύθηκε στο πλαίσιο των Ηνωμένων Εθνών και ενσωματώθηκε από περισσότερα από 140 κράτη στο εθνικό τους δίκαιο, συμπεριλαμβανομένων και των 27 κρατών-μελών της Ευρωπαϊκής Ένωσης.

Η Σύμβαση της Νέας Υόρκης παρέχει ένα ισχυρό, ενιαίο μηχανισμό αναγνώρισης και εφαρμογής ξένων διαιτητικών αποφάσεων, υποχρεώνοντας τα κράτη που έχουν προσχωρήσει σε αυτήν να τις αναγνωρίζουν ως δεσμευτικές και να τις εφαρμόζουν, υπό την προϋπόθεση, ωστόσο, η συμφωνία μεταξύ των μερών για τη διαιτησία, ως του τρόπου επίλυσης τυχόν διαφορών, να έχει γίνει «γραπτώς» (είτε αυτή είναι υπογεγραμμένη, είτε εμπεριέχεται στην ανταλλαγή εγγράφων).

Αναμφισβήτητα, σκοπός της διαιτησίας είναι η παροχή ενός επαρκούς, αποτελεσματικού και αξιόπιστου εναλλακτικού, συναινετικής φύσεως,  τρόπου επίλυσης διαφορών που εξοικονομεί χρόνο και χρήματα και εμπνέει εμπιστοσύνη στα μέρη που επιλέγουν να προσφύγουν σε αυτήν, παρέχοντας δεσμευτικές και οριστικές αποφάσεις.

Ωστόσο, στην εσωτερική Αγγλική νομοθεσία που αφορά τη διαιτησία και, συγκεκριμένα, στο πιο πρόσφατο σχετικό θέσπισμα/νομοθέτημα του 1996, παρατηρούμε ότι ο νομοθέτης σε αρκετές περιπτώσεις παρέχει τη δυνατότητα στα ηττηθέντα μέρη να αμφισβητήσουν την εγκυρότητα των διαιτητικών αποφάσεων με αίτηση στα αρμόδια δικαστήρια που στηρίζεται:

 είτε σε λόγους έλλειψης δικαιοδοσίας της διαιτητικής επιτροπής, είτε σε λόγους διαδικαστικής αντικανονικότητας που επηρεάζει τις διαδικασίες, την επιτροπή και την απόφαση και η οποία, το δικαστήριο θεωρεί ότι, θα προκαλέσει ουσιαστική αδικία στα συμφέροντα του αιτούντος, είτε, τέλος, σε ουσιώδεις λόγους εξαιτίας της εσφαλμένης ερμηνείας και εφαρμογής του νόμου από τη διαιτητική επιτροπή.

Παρέχει, επίσης, στα μέρη, κατά τη διάρκεια των διαιτητικών διαδικασιών, τη δυνατότητα να υποβάλλουν αίτηση στα δικαστήρια αιτώντας την απομάκρυνση εκ της διαιτητικής επιτροπής ενός εκ των διαιτητών, σε περίπτωση δικαιολογημένων αμφιβολιών ως προς την αμεροληψία του, η οποία δύναται να προκαλέσει ουσιαστική αδικία στα συμφέροντα του αιτούντος.

Σκοπός της συγκεκριμένης μελέτης είναι να αναλύσει τις παραπάνω δυνατότητες που παρέχει το σχετικό Αγγλικό νομοθέτημα του 1996 στα μέρη, καθώς και να διερευνήσει αν οι δυνατότητες αυτές  μπορούν να επηρεάσουν αρνητικά το χαρακτήρα της διαιτησίας ως μίας αξιόπιστης μεθόδου επίλυσης διαφορών που αποσκοπεί στην οριστικότητα των αποφάσεών της.



The toolkit available and potential success of a party’s action founded on grounds for complaints against the arbitrator or the award in international commercial arbitration.

Introduction

International Commercial Arbitration has emerged over the last 50 years as the key/principle method for the settlement of commercial disputes with a ‘foreign’ or ‘international’ element, despite the initial scepticism it was historically viewed with.

Unlike court litigation, arbitration is an alternative private dispute resolution method, premised upon the parties’ agreement to arbitrate. In the absence of a valid arbitration agreement, arbitration cannot be imposed. Thus, courts can only compel arbitration where valid agreements to arbitrate exist. So, it can be seen that the agreement to arbitrate and its legal force is the foundation stone and a necessary ingredient of nearly every international arbitration process which records the parties’ consent to refer their disputes to arbitration. As such, because of the widespread consensus among various national arbitration laws that agreements to arbitrate must be enforced, it is seen as one of the most significant aspects of international commercial arbitration. It is to be noted that provisions giving binding effect to such agreements can be found in the majority of national arbitration laws.

Insofar as English internal law is concerned, the court can be asked to enforce and  recognize as an English court judgment an arbitration award from abroad, i.e. a foreign arbitral award. With respect to this, it is of particular importance to refer to the fundamentally consensual nature of arbitration which is well reflected in the 1958 New York Convention and, in particular, in Article II.

That said, among the several international conventions seeking to provide a uniform enforcement mechanism for arbitration agreements, the most significant and dominant of these is the New York Convention of June 1958 on Recognition and Enforcement of Foreign Arbitral Awards. The 1958 ‘Convention’ was negotiated within the United Nations context and has been ratified and adopted by well over 140 states including all 27 Union member states into their national laws. England has also acceded to and adopted the New York Convention on the recognition and enforcement of arbitral awards. The 1958 ‘Convention’ requires Contracting States to enforce international commercial agreements to arbitrate.

In line with the general principles governing contract validity and formation in all types of contracts, the draftsmen of the New York Convention 1958 seem to mover away from the diachronic disbelief of arbitration. Thus, they provide for the presumptive validity and obligatory recognition of international agreements with a view to persuading national courts to recognize as binding and enforce arbitral awards as readily as possible. In so doing, they impose on Contracting States the obligation to recognize international agreements to arbitrate so long as, among certain other requirements, the most universal ‘written form’ criterion laid down in its Article II(1) along with related criteria provided for in its Article II (2) for a ‘signature’ and/or ‘an exchange’ of writings, are satisfied.

Moreover, they also provide for robust enforcement mechanisms for such agreements in Article II(3) by referring the parties to arbitration whenever a court of a Contracting State is faced with a matter which the parties have agreed to arbitrate, typically subject only to a limited number of exceptions/defenses on generally-applicable contract law grounds.

So, the New York Convention had one central aim, namely to ensure that an award which had been published in a signatory state other that that where recognition and enforcement is sought and which had dealt with the substantive issues and the merits of the dispute, would not be revisited on the merits at the time of enforcement by the enforcing court at the behest of the losing party.

The few and limited substantive grounds upon which the court addressed may refuse to recognize and enforce a New York Convention are exhaustively provided for by Articles V and VI.

It must be noted, that save for the provisions of Article V (2) which allow for the assertion of the non-arbitrability defense to the enforcement of foreign arbitral awards under the ‘Convention’ (i.e. the court addressed, whether at the invitation of the party or addressed of its own motion, considers the subject matter as non arbitrable under its own law) or where the award goes against the public policy of the enforcing state, in all other cases the onus of proof of the presence of one of the specified grounds for refusal of the recognition and enforcement of an arbitral award from abroad is cast on the respondent ( i.e. the party objecting to recognition).

While a signatory state is always allowed to make a reservation confining its application of the New York Convention to awards issued in a country other that that where recognition and enforcement is sought, including the UK, contracting states can also make another reservation restricting their application of the 1958 ‘Convention’ to claims resulting from legal relationships, whether contractual or not, which are considered commercial under their own laws. Such reservations have been made by various countries including Greece, Denmark and France, but not by the UK. For that reason, although arbitration was used primarily in commercial matters it is now used in a variety of instances and is relevant for a large number of legal areas.

Under English law, the arbitral proceedings are governed by the Arbitration Act 1996 which received the Royal Assent in 1996 and came into effect on 31 January 1997. Insofar as the English internal legislation is concerned, the 1958 ‘Convention’ is mirrored in ss. 100-104 of the 1996 Act. Prior to the enactment of the 1996 Act, arbitration legislation within the UK jurisdiction was dispersed amongst the following three statutes, the Arbitration Act 1950, the Arbitration Act 1975, and the Arbitration Act 1979. The 1950 Act was the main statute providing for procedural rules in relation to, for instance, the appointment and the removal of arbitrators. The 1975 Act was the main statute by virtue of which the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards was incorporated into English national law. Lastly, the 1979 Act dealt with the judicial review to which arbitral awards were being subject. Hence, the Arbitration Act 1996 succeeded the former 1950, 1975 and 1979 Acts, prodded by the need to have a new Act enacted that, whilst rejecting the suitability of adopting the 1985 Model Law into English Law, it would be ‘user-friendly’ and accessible to those already acquainted with 1985 UNCITRAL’s Model Law on International Commercial Arbitration.

The new legislation, namely the 1996 Act, is triggered whenever the place of arbitration is within the UK jurisdiction, and is primarily aimed at granting parties greater autonomy as well as facilitating in the fair settlement of claims by an unbiased tribunal in a manner which will not be unnecessarily costly and time-consuming. This was intended to make sure that London could retain its reputation as a leading international arbitration hub.

It goes without saying that once an arbitral award has been issued, it is reasonably expected that the award will be honored in a timely manner by both parties as a specific element inherent in every arbitration agreement. The aim of arbitration is to arrive at a final and binding decision on the parties which will be carried out without delay.

This purpose is underscored, for instance, in the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL Rules) which explicitly provide in their Art 34 (2) for the final and binding nature of the arbitral award. In the same line of reasoning, at the international level when the parties submit to institutional arbitration, such as in the 2017 International Chamber of Commerce Rules of Arbitration (ICC Arbitration Rules), Art 28(6) expressly stipulates that ‘the parties undertake to carry out any award and to have waived their right to any form of recourse insofar as such waiver can be validly made.’

However, it is not always the case that the losing party will readily honor the award, at least not without challenging the award on one of the following three wide areas on which the validity or effect of an arbitral award may be contested before a designated competent national court at the seat of the arbitration: First, on jurisdictional grounds, namely that a valid and binding agreement is non-existent, on the basis that the arbitral tribunal lacked substantive jurisdiction to hear the case. Secondly, it may be challenged on procedural grounds for a serious irregularity. Thirdly and, most rarely, on substantive grounds insofar as the tribunal has allegedly made an error on a point/question of law.

As the Arbitration Act 1996 empowers the parties to arbitration with greater control over the proceedings, on the one hand the part played by courts is substantively diminished, and on the other hand the parties’ freedom is wide-ranging. The latter would cover, for instance, the power of the court at any time during the conduct of the arbitration to remove an arbitrator if one of the parties feels there are surrounding facts that give rise to ‘justifiable grounds’ as to the arbitrator’s impartiality, under s. 24 of the AA 1996 (discussed further below).

Courts will nonetheless try to interfere with the arbitral proceedings and the award as less as possible. That said, this particular study aims at ascertaining whether or not the toolkit available to parties can affect the aim of the arbitration which is to ensure that an effective dispute resolution system is in place along with privacy and finality that inspire confidence and trust in all parties involved in its process ( despite the grounds for challenge under the Arbitration Act 1996, or the few and limited grounds upon which the court may refuse to recognize and enforce as an English court judgment a United Nations Convention 1958 foreign award. The same is also true with other important international organizations such as the 1985 UNCITRAL Model Law which provides an exclusive, exhaustive list of grounds of recourse to a court against an arbitral award if the applicant aspiring to annul the award establishes one of the specified grounds provided for in Art 34(2) which parallel those applicable under Art V of the ‘Convention,’ the ICC Rules or the ICSID awards. The enforcement of the latter’s awards by its signatories are not subject to judicial review, but must be made with reference to internal procedures of annulment found within the ICSID system itself, such as ICSID committees on a few and limited grounds including that the tribunal had overstepped its authority or that it was improperly informed. The annulment of an award remits the dispute to a fresh tribunal to resolve the case).

 

Section 24 of the Arbitration Act 1996

During the course of the arbitration a party may feel that the arbitrator is showing partiality to one of the two sides for reasons which are not linked to the merits of the dispute. The party does not have to wait until an award is issued and then seek to challenge it under s.68. Instead the aggrieved party can raise the issue during the arbitration and seek a remedy at any time during the conduct of the arbitration. The aggrieved party will need to collect evidence of the arbitrator’s partiality, i.e. lack of impartiality.

Of course, the finding and gathering of such evidence is not easy and at the same time, it is more likely than not that the arbitrator and the opposing side will deny the existence of partiality. That is why, section 24 (a) gives to the court the power to remove an arbitrator where there are “justifiable doubts” as to his impartiality. In other words, the aggrieved party does not actually have to prove the existence of actual lack of impartiality. It is sufficient to show that there are surrounding facts/circumstances which give rise to “justifiable doubts” as to the arbitrator’s impartiality.

As per the case of Porter v. Magill [2001] UKHL 67, the test is: would a fair minded and informed observer conclude that there was a real possibility the tribunal was biased? There are three instances of bias which may give rise to challenge. If the arbitrator has a personal interest in the outcome and a direct financial interest or is so closely connected as to be acting in his own cause, Laker Airways Inc v FLS Aerospace Ltd [1999] 2 Lloyd’s Rep 45 at 49.

By way of further recent example, the case of Cofely Ltd v. Bingham [2016] EWHC 240, highlights that where an arbitrator receives a substantial portion of his annual income from his appointments from a particular firm (e.g. say 20-25%) and simultaneously fails to disclose to the parties this interest contrary to the guideline provided by Rule 3 of the Chartered Institute  of Arbitrators Code of Professional & Ethical conduct of members, thereby showing a “lack of objectivity and  an increased risk of unconscious bias” then the arbitrator will be removed by the court under section 24. This does not mean that an arbitrator must be 100% independent of the parties. It is noted that whereas Art 12 ss.(1) and (2) of the UNCITRAL Model Law refer to ‘independence’ with regard to grounds for challenging an arbitrator if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, this has not been adopted by the Arbitration Act 1996. It is natural particularly in the small world of arbitrators, that they have come across parties and their legal advisors in the past, possibly as opponents or even on the same side. So, the issue is not 100% independence but instead the focus is more on lack of impartiality, AT & T Corporations v. Saudi Cable Co. [2000] 2 Lloyd’s Rep. 127. It is also noted that whereas the Human Rights Convention in article 6, refers to a parties right to a fair trial by an independent and impartial tribunal, it has been held that the lack of the word “independent” in the Arbitration Act 1996 in arbitrations under English Law does not automatically entail an unfair trial, Paul Stretford v. Football Association [2007] EWCA Civ 238, [35]-[53] esp. [39].

So, it can be seen that for an arbitrator to be removed under s. 24, it is not necessary to prove actual bias but it is sufficient to show a justifiable doubt as to his impartiality. Of course, if proven or conscious bias is established the arbitrator will be removed, The Catalina v The Norma (1938) 61 LI L Rep 360.

It is noted that although s. 24 does not refer to s. 73 of the AA 1996 at all, namely the “loss of right to object”, nevertheless it has been held that s. 73 not only applies to s. 68 but also applies to section 24 (Wicketts & Sterndale v. Brine Builders & Siederer [2001] App.L.R. 06/08).

A good and perhaps surprising example is provided by Laker Airways Inc v FLS Aerospace Ltd [1999] 2 Lloyd’s Rep 45, where it was held that there were no objections to a barrister acting as an arbitrator even though he was in the same chambers as a barrister acting for one of the parties. It is noted that barristers in chambers are not considered to be co-employees.

So, it can be seen that despite the toolkit available to parties founded on grounds for complaints against the arbitrator it is not an easy matter to remove an arbitrator under s.24. Of course, s.24 also stems from the arbitrator’s duty to act impartially and fairly under s. 33 between the parties.

Further on, section 24 does not cover only cases of impartiality. Section 24 (1) (b) also deals with cases where the arbitrator lacks the qualifications required by the arbitration agreement. So, for example, sometimes the arbitration clause provides that the arbitrator to be appointed shall be a “commercial” person. At the same time, it has become common for barristers and other lawyers to become members of the LMAA.

So, if a party appoints a lawyer when the arbitration clause expressly provides for the appointment of a commercial person, then the opponent has the right to object to the appointment because the appointed arbitrator does not meet the requirements of the arbitration agreement.

In such cases, the usual procedure is for the aggrieved party to ask the arbitrator to step down. If he fails to do so, then s. 24 (2) requires the aggrieved party to first address his complaint to any available complaints procedure within the “arbitration institution” through which the arbitration is being conducted before the court can exercise its power of removal. If there is no complaints procedure or the court is satisfied that the applicant has exhausted any available recourse to that complaint procedure and the latter proves to be inadequate then the aggrieved party can apply to the court.

Section 24 can also be used so as to remove an arbitrator who is not fit (physically or mentally capable) to conduct the arbitrations or there are justifiable doubts as to his capacity to do so [s. 24 (1)(c)].

For example, an arbitrator suffers a stroke and he considers he is still fit to act but one of the parties believes that there are justifiable doubts about his capacity.

Finally, we note s. 24 (1) (d) which allows a party to apply to the court to remove an arbitrator if, contrary to section 33, he has refused or failed to conduct the proceedings properly or to use all reasonable despatch in conducting the proceedings or making an award with a risk of substantial injustice caused to the applicant.

Overall, section 24 may appear to be a very powerful tool in the hands of an aggrieved party but as is evident from cases such as Laker Airways Inc v FLS Aerospace Ltd [1999] 2 Lloyd’s Rep 45, in actual practice, it is difficult to remove an arbitrator unless on the facts there is a real risk of substantial injustice which has been or will be caused to the applicant.

And I think this is how it should be, because if it was made easy for an “allegedly” aggrieved party to invoke s. 24 and remove an arbitrator, then a party could use s. 24 too readily so as to stifle the arbitration proceedings and the overall resolution of the claim on its merits. Instead, s. 24 recognizes that it might be used in an abusive way and that is why s.24 (3) specifically provides that the arbitral tribunal may continue the arbitration proceedings and make an award while the application to the court is pending.

On the other hand, one might argue that in cases of a biased and partial arbitrator, s.24 would clearly secure fair proceedings, thus excluding the risk of substantial injustice.

 

Challenges and Awards

To turn now to the issue of challenges and awards, the Arbitration Act 1996, provides for a number of ways in which the courts might become involved in respect of the arbitration proceedings. That said, an arbitral award issued in England and Wales may be enforced with the leave of the court. As already noted above though, the Arbitration Act 1996 is geared towards this being done as little as possible. Nevertheless since arbitrations are a quasi private quasi judicial affair, the Arbitration Act 1996 provides for the court to have a number of supervisory powers. We will focus on the “powers of the court in relation to the award”.

This is covered by sections 66 to 71 of the Arbitration Act. Section 66 relates to the enforcement of the arbitral award, pursuant to which the award creditor may enforce the award.

Here, the Court is not involved so as to overturn the award but on the contrary, so as to assist it. Once an arbitration award is published by the tribunal and the losing party is revealed, it is hoped that the losing party will pay to the winning party whatever is provided for by the award.

However, there is a chance that the award debtor may seek to “ignore” the outcome and not pay as provided for in the arbitration award. Further, the award debtor chooses not to challenge the award under sections 67, 68, 69 of the AA 1996. At that point, the winning party will want to “force” the losing party to pay, i.e. “enforce” the award against the losing party. However, the arbitration award is in reality a private document. For example, if the winning party takes the Arbitration award and presents it to the bank where the losing party has his bank account and asks the bank to pay the winning party from the cash in the losing party’s bank account, the bank will simply ignore the request. The Arbitration award on its own cannot force the bank to pay because it is merely a private document.

Thus, it becomes apparent that the winning party needs to obtain the assistance of the court, so as to convert the private arbitration award into a court order that has the force of her majesty’s law and hence upon its presentation to third parties such as the bank, the third parties must comply. This is where section 66 comes in.

Section 66 (1) provides that a party may seek to obtain the “leave”, i.e. the permission of the court, so as to enforce the arbitration award made by the arbitral tribunal as if it was a judgment or order of the court.

Alternatively, under section 66 (2), where leave is so given, the winning party can seek to “enter judgment” in terms of the award, i.e. obtain in his hands a UK court judgment for a “debt”.

It is to be noted that at all times, section 81 of the AA 1996 still allows the winning party to commence an “Action on the Award” at common law, i.e. an action for a debt (Hassneh Insurance Co of Israel v Steuart J Mew [1993] 2 Lloyd’s Rep 243).

It is also noted that section 66 (3) allows the losing party to seek to stop the conversion of the arbitration award into a court judgment by successfully showing that the tribunal lacked substantive jurisdiction to make the award, i.e. jurisdiction to hear the merits of the dispute.

However, the right to challenge the tribunals jurisdiction under s. 66 (3) must be made promptly and hence the right to challenge an award on jurisdictional grounds will be lost if the right to object is lost under s. 73 of the AA 1996, i.e. not made within the prescribed time limits laid out in s. 73.

Section 73 specifically provides that a party may lose the right to object later before the tribunal or the court if he participates or continues to take part in the proceedings without raising some objections, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal as soon as he knew of the irregularity and that he had grounds for the objection ( unless he shows that, at the time he took part or continued to participate in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection).

 So, section 73 aims to prevent a party from waiting to see what the outcome of the arbitration will be before challenging the tribunal’s jurisdiction. In other words, section 73 seeks to prevent a party from attempting a second bite at the cherry.

Having said the above, one might wonder why section 66 (3) even mentions that leave to enforce the award will not be given by the court if the tribunal lacks substantive jurisdiction. The answer is that section 66 (3) aims not so as to protect parties that have participated in the arbitration and which have already had a chance to challenge the tribunal’s jurisdiction under s.31 and/or s.67, but s. 66 (3) aims to protect a party that has never participated or been invited to participate into the arbitration, and suddenly one day is notified that an award has been issued against him. This party, who all of a sudden has been surprised, and an Arbitration award has already been issued, and hence he no longer has an opportunity to go before the arbitrators and tell them that they do not have jurisdiction, at least, at the moment in time when permission is sought by the winning party to convert the private arbitration award into a court judgment, he has the opportunity to go before the court and inform the court that the tribunal did not have jurisdiction. Hence, s.66 (3) aims to protect innocent non participating parties.

When can a losing party challenge the award?

There are three main sections which deal with challenges to a Tribunal’s award. These are ss. 67, 68, and 69 of the Arbitration Act1996.

We say that these are the main sections because throughout the Arbitration Act 1996 there are additional provisions which set out occasions when a party can challenge an award [e.g., as already alluded to, s.66 (3) - challenge the award at the enforcement stage on grounds of lack of substantive jurisdiction by the arbitral tribunal, as long as the right is not lost pursuant to s.73, or Article V of the New York Convention, echoed by s.103 of the English statute - grounds on which to challenge a 1958 ‘Convention’ award, or, perform some challenge during the conduct of the arbitration proceedings without having to wait for an award, s.24 - application to the court to remove an arbitrator, as seen above].

If the tribunal proceeds to issue an award on substantive jurisdictional matters and one of the parties wishes to challenge it, then he will seek to activate s.67 (1)(a) in respect of a number of questions, such as the invalidity of the agreement to arbitrate, the proper constitution of the arbitral tribunal, and the question of the applicability of the agreement to arbitrate to parties not named in the agreement . However, in order for the applicant or appellant to be allowed to invoke s. 67 (1)(a), he must first apply or appeal via any available “arbitral appeal or review process” [s.70 (2)], or have exhausted any available recourse under section 57 ( correction of award or additional award) [s.70 (2)(b)], and he must not have lost the right to object under s.73 (in other words, he must have proceeded to challenge the tribunal’s jurisdiction as soon as he became aware that there was an issue with the tribunal’s substantive jurisdiction). Of course, this challenge to the award on jurisdiction through any application or appeal must be made within 28 days of date of the award or, if there has been any arbitral process of appeal or review, of the date where the applicant or appellant was notified of the result of that process, [s. 70(3)].

If for some reason the tribunal does not proceed to issue an award on jurisdiction but merely proceeds to issue straight away an award on the merits, the aggrieved party, can still seek to challenge the award on the merits by applying to the court for an order declaring such award to be of no effect, in whole or in part, for an allegedly lack of substantive jurisdiction under s.67 (1) (b). Again, he must comply with ss. 73, 70 (2), and 70 (3).

In the meantime while the challenge to the court is progressing the tribunal can continue with the arbitration proceedings and make a further award. Again, as with s.24 (3), section 67 (2) recognizes that it might be used in an abusive way so as to stifle the arbitration and the overall resolution on the merits of the claim and that is why it explicitly provides that the arbitration proceedings may continue while the challenge to the court is pending in relation to an award as to jurisdiction. The court in the meantime will examine the challenge and if may affirm the tribunals’ award on jurisdiction, or it may alter it or may set it aside in whole or in part, s. 67 (3).

To turn now to section 68, this provides a closed list of categories in s.68 (2) which contains additional and different grounds upon which a party to arbitral proceedings may apply to the court challenging the tribunal’s award in the proceedings on the basis of a serious irregularity affecting the tribunal, the proceedings or the award, as per section (1).

Events listed in section (2) that will be considered as comprising serious irregularity include:

as per subsection (a) failure by the tribunal to  comply with its general duty under s.33, such as failure to act fairly and impartially as between the parties, offering each party a reasonable chance to present their case before the tribunal and counter that of the opposing party,

as per subsection (b) if the tribunal exceeds its agreed powers,

as per subsection (c) failure by the tribunal to carry out the arbitration proceedings in pursuance with the procedure agreed by the parties,

as per subsection (d) failure by the tribunal to treat all issues that were put to it,

as per subsection (e) any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award exceeding its powers,

as per subsection (f) uncertainty or ambiguity as to the award,

as per subsection (g) the obtaining of the award by fraudulent means or the award or the manner in which it was procured running contrary to public policy,

as per subsection (h) failure to comply with the requirements as to the form of the award; or

as per subsection (i) any irregularity in the conduct of the proceedings or in the award which is admitted by the tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award.

For example, if during the course of the proceedings the tribunal gave to party X the right to present his arguments orally but refused this right to party Y then the tribunal, in breach of section 33 has failed to act impartially as between the parties and so there appears to be a serious irregularity in respect of the “proceedings” [s. 68 (2)(a)]. This can enable party Y to challenge the tribunal’s award under section 68.

A further example of a serious irregularity is where, for example, party X discovers that one of the arbitrators has a business partnership or even an emotional affair with party Y, or one of party Y’s lawyers. In such a case the aggrieved party can challenge the arbitration award under section 68 because there is an irregularity in respect of the tribunal, s. 68 (2) (a).

By way of further example, an arbitrator should not impose sanctions on a party for adhering to his contractual right to carry out the arbitration solely with the other party with which it has the contractual relationship, excluding non signatories. If the arbitrator thinks that the parties’ adherence to its contractual right to exclude non signatories from the arbitration contradicts his general duty under section 33(b) to adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined, he can simply step down. An arbitrator who penalises a party for refusing to co-operate in concurrent arbitrations/hearings or uses evidence served in related or parallel arbitrations may risk applications to the court for removal under s.24 (1)(d)(i) on grounds of refusing or failing to properly conduct the proceedings or a challenge to the award on the grounds of serious irregularity under s.68(2)(a) or (c) for failure by the tribunal to carry out the proceedings in pursuance with the agreed procedure between the parties. It might be argued that an arbitrator who permits a third party, such as a party involved in another arbitration or even another arbitrator to obtain access to documents or submissions or even the hearing itself, has exceeded its powers under s.68(2)(b), Oxford Shipping Co Ltd v Nippon Yusen Kaisha, The Eastern Saga [1984] 2 Lloyd’s Rep 373 (Comm).

Overall, in order to succeed under s.68 of the Arbitration Act 1996 an applicant needs to establish a serious irregularity which falls within the above closed list of categories in s.68(2), and the court considers that one or more of the irregularities identified has caused or will cause the party substantial injustice.

In actual practice, however, this may be hard to establish except where the private character of the arbitration proceedings has been   disregarded, so much so that “what has happened is so far removed from the reasonable expectations of the arbitral process that we could expect the court to take action” [DAC Report, para 280; Primera Maritime v Jiangsu [2013] EWHC 3066 (Comm)].

 To prove substantial injustice in the context of section 68, it is not necessary for the court to re-examine the case on the merits in detail. It is sufficient to show that but for the irregularity the tribunal may not have reached the same conclusion but instead may have arrived at another conclusion that is at least reasonably arguable as being favourable to the applicant, Vee Networks v Econet [2004] EWHC 2909 (Comm).

However, in The Capricorn I (Aquator Shipping Ltd v Kleimar NV [1998] 2 Lloyd’s Rep 379), decided under the old 1950 Arbitration Act, there where two arbitrations, consisted of two-man tribunals with a common arbitrator in their composition, arising out of the same facts and proceeding in parallel, but the application to the court failed because no substantial injustice could be established. The tribunal would not have arrived at a different conclusion which was at least reasonably arguable as being more favourable to the applicants, even if the latter had been given a reasonable chance of responding to the evidence disclosed in the parallel arbitration proceedings.

So, as can be seen from the above, despite the toolkit available to parties, generally the courts strive to uphold arbitration awards and not to scrutinize them too meticulously. The aim is not to overturn awards for minor faults that do not result in injustice, OAO Northern Shipping Co v Romolcadores de Marin SL [2007] EWHC 1821 (Comm).

It is noted that even if the parties wish they cannot opt out from the operation of section 68.

Finally, it should be noted that section 68 will be applied even in the case were you have an award without reasons, i.e. an unappealable award under s. 69 of the Arbitration Act 1996 (to be discussed shortly), if the court is satisfied there has been an irregularity of real serious nature that will cause substantial injustice if it does not step in, The Easy Rider [2004] EWHC 1862 (Comm).

The third way in which an award can be challenged is if the aggrieved party considers that the tribunal has applied the law wrongly/incorrectly.

Hence, the aggrieved party can appeal/challenge the award on a question of law. Section 69 was drafted to a large extent on the basis of the rulings in the leading case of ‘The Nema’ (Pioneer Shipping Ltd and Others v BTP Tioxide Ltd (The Nema), reaffirmed in The Antaios [1985] AC 191) decided under the old Arbitration Act 1979, the judicial expressions in which are still relevant and were given statutory form in s.69 of the AA 1996.

In ‘The Nema’, their Lordships stated that the courts should be economical in granting leave to appeal drawing a distinction between a one-off individually negotiated clause where leave should not normally be granted, provided the judge was not convinced that arbitrator’s decision was obviously wrong, and standard terms where, they said, leave should be granted more freely.

So, it can be seen again that in spite of the parties’ toolkit founded on grounds for complaints against the arbitrators it is not an easy task to overturn arbitral decisions and disturb the effectiveness and the advantages of the arbitration.

Two interesting points to mention at the outset. The activation of s. 69 is not referred to as a “challenge” to the award but it is called an “appeal”. The second point is that section 69, is optional for the parties.  It may be excluded by agreement, Lesotho Highlands Development Authority v Impregilo SpA and others, [2005] UKHL 43.

The Arbitration Act 1996 draws a distinction between reasoned awards where the arbitrator provides reasons for his awards and awards lacking reasons.

It is possible for the parties, either before the commencement of arbitration or during the conduct of the arbitration proceedings to agree to dispense with reasons and waive the “right of appeal”. For example, by adopting the LMAA small clauses procedure the right to appeal under s.69 is excluded. If the tribunal asks whether the parties want a “reasoned award” or not and the parties both agree that they do not want a “reasoned award”, then, this means that once on award is issued, neither of the parties can proceed to “challenge” it under s. 69. Thus, they will have waived any right to appeal on questions of law. It is noted that the LMAA full terms procedure 2012 also gives to the parties the option, if they both want it, to dispense with reasons.

Section 69 of the Arbitration Act 1996 also expressly allows this. It is noted that the parties, as discussed above, ever if they want, they cannot opt out of the operation of s. 68 or s.67.

The right to appeal under s. 69 is not automatic but you need either the consent of all the parties or the courts permission. Further, you must of course comply with s.70 (2), i.e. exhaust all the possible appeal processes of the arbitration proceedings and s.70 (3), namely you must file your appeal with the court within 28 days of the date the award is published.

The court will only give permission if it is satisfied that:

(a) the outcome will be substantially affected, and

(b) the issue was raised before the tribunal and on the basis of the facts which the tribunal determined and which are deemed to be irreversible the tribunal’s interpretation and application of the law is obviously wrong or at least open to serious doubt and the matter is of general public importance and so it merits the courts’ attention.

The court considers that despite the parties’ choice to have their dispute resolved via arbitration, it is just and proper for it to intervene. It is more difficult to obtain leave where the material question of law is not of general public interest.

The leading case of ‘The Agios Dimitrios’ [2004] EWHC 2232 (Comm) expressly states that two different tests apply in order for leave to be given to appeal. In the case where the appeal question is one of “general public interest” then, the threshold to be given leave to appeal is “serious doubt”. Where the appeal question is not one of general public interest, then the threshold/criterion so as to be granted leave to appeal is that the award must be “obviously wrong”, Section 69 (3) (c) of the AA 1996.

In all cases however, the court will render its judgment on the basis of the facts found by the Tribunal. The court will not rule on the facts. If the Tribunal has not provided adequate rulings on the questions of fact, the court will remit the award to them for additional reasons.

Finally, it should be noted that where there are legitimate constraints on a right of appeal, such as where the material point is one of general public importance, the refusal to give reasons does not contradict the right to a fair trial provided for in Art.6 of the ECHR. In agreeing to arbitrate, the parties have opted for finality and privacy and have repudiated their rights under the application of Art.6 of the ECHR, Mousaka Inc v Golden Seagull Maritime Inc and Another [2001] 2 Lloyd’s Rep 657.

The reasoning behind this is that expounding the reasons for refusal might well allow parties elbow room to ‘read’ reasons into the elaborate development and try to dispute the tribunal’s decision and discredit the long standing of arbitration as an alternative but particularly efficient and dependable long-term method of resolving disputes. The section 69 (3) tests are well designed to reflect this rationale.

Overall, once awards are issued by the tribunals, most Arbitration statutes tend to treat them as binding, with res judicata effect, and presumptively valid, which may be subject to review only in exceptional cases.

So, we can see again that the objective of the arbitration is to safeguard the effectiveness of a reliable system of dispute resolution method which achieves the purposes of arbitration, namely the finality of awards that radiates trust, confidence, and privacy, despite the powerful tools available to parties against the arbitrators.

No doubt, the aim of arbitration is to avoid the costly and time consuming court proceedings which would hinder the relatively fast and costless resolution of the disputes by its own method. To this end, arbitral awards subject to judicial review are, and should be, as narrowly restricted as possible.

Conclusion

All in all, the arbitration proceedings offer a workable alternative to traditional court proceedings, saving time and money for any opposing parties electing to submit their dispute to arbitration. On the other hand, the overuse of the toolkit provided to parties and their potential success on grounds founded for complaints against the arbitrators or the awards, especially under the Arbitration Act 1996 which governs English law may seriously pervade its purpose making it unexpectedly expensive and time consuming. It is a comfort to know though that the Arbitration Act (1996) itself recognizes this and that is why it provides on several occasions for the arbitral tribunal to continue with the arbitration proceedings and make an award while an application to the court is still afoot.

Σε αντίθεση με τα παραδοσιακά δικαστήρια, η Διεθνής Εμπορική Διαιτησία συνιστά έναν εναλλακτικό εξωδικαστικό ιδιωτικό τρόπο επίλυσης των διαφορών που προκύπτουν από τις εμπορικές συμβάσεις μεταξύ των μερών, που βρίσκονται σε διαφορετικά μέρη του κόσμου.


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