English Court dismisses attempt to set aside LCIA award on grounds of serious irregularity

In the recent case of X v Y [2018] EWHC 741 (Comm), the English High Court dismissed an application to set aside an arbitral award under s68 of the English Arbitration Act 1996 (the Act) on the basis that the claimant should have first exhausted all remedies available to it by applying to the tribunal for correction or clarification of the award under s57(3) of the Act.  The Court found that a tribunal had power under Article 27.1 of the LCIA Rules 1998 to clarify ambiguity in the award, and that Article 27.1 did not, in any case,  oust the tribunal’s equivalent power under s57(3) of the Act. The wording of Article 27.1 in the LCIA Rules 2014 now expressly refers to correcting any ambiguity.

The case is a useful reminder to unsuccessful parties to analyse quickly and thoroughly an award and to ensure that any available process under s57 is exhausted before an application is made under s68. In particular, those who consider that the tribunal’s award is deficient for failing to deal with all issues put to it should assess whether such a complaint may be dealt with under s57(3) as a failure to give (adequate) reasons.

The arbitration and the challenge to the award

In the arbitration, administered under the LCIA 1998 Rules, the tribunal (Tribunal), concluded in its award (Award) that the claimant was liable under a contract and awarded the defendant damages of US $21,104,201.51. The claimant challenged the Award under s68(2)(a) (failure to comply with the duty to act fairly and impartially) and s68(2)(d) (failure to deal with all the issues put to the tribunal). Despite having issued its arbitration claim form on 5 January 2017, the claimant took no steps to list its s68 challenges and eventually the defendant applied for the challenges to be listed. The claimant served no skeleton argument and did not attend the hearing of the challenge.

A ‘preliminary obstacle’ under s57 of the Act to an award challenge

The defendant argued that none of the claimant’s grounds for alleged serious irregularity was well founded. The defendant argued that, in any event, the challenge should be dismissed since the claimant had failed to exhaust any available recourse under s57 of the Act before applying under s68, as required by s70(2)(b). S57(1) provides that the parties may agree on the powers of the tribunal to correct an award or make an additional award. In the absence of such agreement, the tribunal may, either on its own initiative or upon application by a party, correct an award so as to remove a clerical mistake or error arising from an accidental slip or omission or clarify or remove any ambiguity in the award (s57(3)(a)).

The claimant argued in its arbitration claim form that s57 did not apply on the basis that Article 27.1 of the LCIA Rules 1998 is an agreement which ousts s57(3)(a) and provides for a more limited range of review options.  Article 27.1 provides that the tribunal can “correct in the award any errors in computation, clerical or typographical errors or any errors of a similar nature“, provided that a party makes a request within 30 days of receipt of the award (or a lesser period as agreed between the parties). The defendant rejected this argument, arguing that Article 27.1 does not oust s57 of the Act.

The High Court’s judgment

The Court found that the claimant’s grounds for challenge could have been brought before the Tribunal under s57 for clarification or removal of any ambiguity. In considering the scope of s57(3)(a), the Court cited Torch Offshore Llc and Cable Shipping Inc [2004] EWHC 787 (Comm), in which the court recognised that an award which contains inadequate rationale or incomplete reasons for a decision is likely to be ambiguous, and concluded that s57(3)(a) could be used to request (further) reasons from the arbitrator.

Following Xstrata Coal Queensland Pty Ltd v Benxi Iron Steel Group International Economic and Trading Co Ltd [2017] 1 AR (Comm) 299, the Court held that the absence of an express reference to clarifying ambiguity in the LCIA Rules 1998 is immaterial and that the tribunal’s power to correct ambiguity is encompassed in Article 27.1 within the words of “any errors of a similar nature“. The Court decided that, even if it were wrong on this point, the tribunal’s power to correct ambiguity expressly provided in s57(3) would be unaffected. While Article 27 is contractually permissive in terms of the tribunal’s powers, it is not to be construed as excluding the tribunal’s powers under s57(3).

The Court concluded that the claimant should have sought clarification of, and removal of any ambiguity from, the Award from the Tribunal under s57. Having failed to apply under s57 within the 28 days permitted by the Act, the claimant could not bring a challenge under s68. The Court considered that, even if it had allowed the claimant’s application under s68, each of the alleged bases of challenge lacked merit and would have been dismissed in any event.

Comment

This was an unusual application because, having brought the claim, the claimant failed to make any submissions or participate at the hearing. It followed that the Court had to determine the challenge on the basis of the claimant’s arbitration claim form and the defendant’s submissions.  Nevertheless, the Court’s unwillingness to grant the challenge in this case is evidences of the Court’s firm approach to challenges to awards. The requirement for a claimant to exhaust the mechanisms available under s57 prior to its challenge application reflects the policy objective of the Act to enable the arbitral process to correct itself and obviate the need for the court’s involvement. Finally, the Court emphasised that a s68 application should not be used for a challenge on a point of law, especially in the case of an LCIA award, given that Article 26.9 of the LCIA Rules 1998 precludes the parties from bringing an appeal on a point of law.  Accordingly, the Court warned that courts should analyse s68 applications “with care to ensure that they are not in fact disguised challenges to legal conclusions reached by the Tribunal“.

 

For further questions, please contact Nick Peacock, Partner, Natalie Yarrow, Associate, or your usual Herbert Smith Freehills contact.

Nicholas Peacock
Nicholas Peacock
Partner
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+44 20 7466 2803
Natalie Yarrow
Natalie Yarrow
Associate
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+44 20 7466 2409

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Filed under Arbitration Act 1996, Awards, Challenges to awards, Europe, Procedures in arbitration

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