In this second article considering how to challenge awards under the Arbitration Act 1996 (AA 1996), Richard Marshall & Nicole Finlayson, solicitors, look at challenges to an award on the ground of serious irregularity (s 68). Historically, successful challenges under s 68 have been rare. To quote the Report of the Departmental Advisory Committee which led to AA 1996, s 68 ‘is really designed as 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’.
Recent case law demonstrates that this principle still very much holds true in practice.
Serious irregularity affecting tribunal, proceedings or award
Section 68 allows a party to arbitral proceedings to apply to court challenging an award on the ground of serious irregularity affecting the tribunal, proceedings or award. ‘Serious irregularity’ means an irregularity of one or more of the types listed in s 68(2) which the court considers has caused or will cause substantial injustice to the applicant (see ‘Irregularity under s 68’ below). An applicant therefore needs to demonstrate first, that a serious irregularity has occurred; second, that the irregularity falls within one of the categories set out in s 68(2), and third, that the irregularity has or will result in ‘substantial injustice’.
Section 68 is a mandatory provision that parties cannot contract out of. If an applicant successfully proves that there is a serious irregularity, the court may remit the award to the tribunal for reconsideration, set it aside or declare it to be of no effect (in whole or part).
Focus on due process, not correctness of decision
One of the more popular (and in the court’s eyes, overused) categories of serious irregularity is ‘failure by the tribunal to comply with s 33 (general duty of tribunal)’ (s 68(2)(a)).
In La Société pour la Recherche, la Production, le Transport, la Transformation et la Commercialisation des Hydrocarbures SPA v Statoil Natural Gas LLC  EWHC 875, the claimant argued that the tribunal had acted in breach of its duty under s 33(1)(a) to act ‘fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent’ by allegedly overlooking and mischaracterising certain pieces of evidence.
Mr Justice Flaux was unimpressed with the claimant’s application, which in reality amounted to an attempt to challenge the tribunal’s findings of fact. He reiterated that ‘the focus of the enquiry under s 68 is due process, not the correctness of the tribunal’s decision’ and concluded that there was no question of absence of due process in this case.
Flaux J stressed that it is entirely inappropriate to use s 68 as a mechanism for challenging the tribunal’s findings of fact. Quoting from his recent judgment in the case of Primera Maritime (Hellas) Limited v Jiangsu Eastern Heavy Industry Co Ltd  EWHC 3066 he repeated: ‘It is clearly not appropriate to use an application under s 68 to challenge the findings of fact made by the tribunal. If it were otherwise every disappointed party could say it had been treated unfairly by pointing to some piece of evidence in its favour which was not referred to in the reasons or not given the weight it feels it should have been. That is precisely the situation in which the court should not intervene. Matters of fact and evaluation of the evidence are for the arbitrators.’
This decision shows the courts upholding the finality of arbitration awards: s 68 is not to be used as a backdoor route to appeals of fact. Practitioners considering a s 68(2)(a) application should weigh up carefully whether the potential applicant’s complaint truly concerns a breach of process or whether in reality it is a complaint regarding the tribunal’s findings of fact. If it centres on the tribunal’s findings of fact, the court may intervene, but will only do so if the tribunal has gone so exceptionally wrong that justice demands the award’s correction. Flaux J noted that such cases would be extreme and rare.
No opportunity v failure to take the opportunity
That said, this year has provided at least one example of a (partially) successful s 68 challenge involving s 33(1)(a) (and therefore s 68(2)(a)).
In Brockton Capital LLP v Atlantic-Pacific Capital Inc  EWHC 1459 the defendant, in a post-hearing memorial, claimed that a sub-section of the underlying contract was an unenforceable penalty. The claimant reserved its position on these new arguments but did not object to them. The tribunal allowed the defendant’s new submissions, but its award referred to the whole of the particular section of the contract as being a penalty, rather than just the sub-section.
Mr Justice Field rejected the claimant’s first argument, finding that it had had an opportunity to object to the defendant’s new arguments. By reserving its position the claimant had failed to take that opportunity, and the tribunal was entitled to assume that the claimant had decided not to make submissions on the new argument. This meant that on that occasion, there was no breach of s 33.
On the other hand, by referring to the whole section rather than just the sub-section, the tribunal had decided a further new submission introduced by the defendant (that a second subsection was also a penalty). The claimant had not had notice of this new submission and therefore had not been given the opportunity to address it. That amounted to a breach of s 33, and that irregularity caused substantial injustice to the claimant. The application succeeded on this second point and the award was remitted back to the tribunal for reconsideration.
Field J observed that there is an important distinction between a party being given no opportunity to address a point, and a party failing to recognise or take the opportunity that exists.
The claimant also argued that the tribunal’s failure to refer to the evidence of one of the witnesses was a breach of its s 33 duty. This argument did not find favour with the court, which concluded that ‘it will only be in the most exceptional case, if ever, that a failure to refer to a particular part of the evidence will constitute a serious irregularity within s 68’.
Robust but fair case management
In Interprods Limited v De La Rue International Limited  EWHC 68 the Commercial Court dismissed challenges brought under both s 67 and s 68.
The claimant identified three serious irregularities in the arbitrator’s conduct of the arbitration, which it claimed were in breach of s 33 and s 68(2)(a):
* holding a telephone conference in the claimant’s absence to fix a further hearing date;
* apparent bias: the arbitrator was simultaneously instructed in two other arbitrations involving the defendant’s firm of solicitors; and
* the manner in which the arbitrator accepted and tested witness evidence at a further hearing which the claimant did not attend.
Dismissing the claimant’s application, Mr Justice Teare found that the arbitrator’s decision to proceed with the conference call in the claimant’s absence was ‘robust but fair’ given that the claimant had been invited but declined to participate. The allegations of bias were rejected. The arbitrator’s findings at the evidential hearing which the claimant also chose not to attend were also found to be fair.
It seems, therefore, that the spirit of Jackson extends to the arbitral process too, and the courts will support tribunals using robust but fair case management methods in order to progress the arbitration where a party is being uncooperative.
Disgruntled parties to an arbitration need to be very aware of the challenges they face in seeking to overturn an arbitral award on the ground of serious irregularity. The focus of any such challenge must be on the process and procedure used rather than the tribunal’s findings of fact. The parties must also have taken every opportunity available to them to put their case to the tribunal.
In the words of Field J in Brockton: ‘The threshold of the test of a serious irregularity giving rise to a substantial injustice is set deliberately high because the purpose of AA 1996 was to reduce drastically the extent of intervention by the courts in the arbitral process. Thus relief under s 68 will only be appropriate where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected.’
Irregularity under s 68
An applicant must prove one or more of the following kinds of irregularity (s 68(2)):
(a) failure by the tribunal to comply with s 33 (general duty of tribunal);
(b) the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction);
(c) failure by the tribunal to conduct the proceedings in accordance with the agreed procedure;
(d) failure by the tribunal to deal with all the issues that were put to it;
(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;
(f) uncertainty or ambiguity as to the effect of the award;
(g) the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy;
(h) failure to comply with the requirements as to the form of the award; or
(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.
Having proved the existence of such an irregularity, the applicant must convince the court that it has caused or will cause the applicant ‘substantial injustice’. There is no single test for deciding whether an irregularity has caused or will cause substantial injustice: it will be very fact specific. As a rule of thumb, the court will need to be satisfied that, but for the irregularity, the applicant would have dealt with the matter differently or the outcome would have been materially different (Chantiers de l’Atlantique SA v Gaztransport & Technigaz SAS  EWHC 3383).