In STA v OFY [2021] EWHC 1574 (Comm), the English High Court refused to grant an extension of time to an applicant seeking to challenge an arbitral award under s68 of the Arbitration Act 1996 (the “Act“), in circumstances where the applicant had let lapse a prior extension order.

The Court’s analysis in this case provides a useful insight into the high bar that s68 applicants face when failure to abide by deadlines is perceived to risk undermining the purpose of the Act.

Background

Pursuant to an UNCITRAL award dated 26 January 2021 (the “Award“), the “Government of STA” was ordered to pay OFY compensation for repudiating a power generation contract. The identities of the parties to the arbitration were not publicly disclosed.

The present judgment arose out of two applications brought by STA under Civil Procedure Rule 62(9) (“CPR“) for extensions of time to challenge the Award under s68 of the Act. S70(3) of the Act prescribes a period of 28-days from an award during which a party may bring an application under s68 of the Act, which may be varied by court order in appropriate circumstances.

First application

Before the initial period under s70(3) expired, STA made an application (on 19 February 2021) requesting an extension of 56 days, on the grounds that there had been delays in instructing solicitors due to government bureaucracy and the effects of Covid-19.

STA was granted a shorter extension than requested of 14 days to 8 March 2021. Importantly, the order provided that:

Any application for a further extension of time must be issued and served by 4.30 pm on 5 March 2021…”

Neither a s68 application nor an application for a further extension were made by STA within this deadline.

Second application

In the meantime, STA had instructed new solicitors, who only became aware of the extension order on 25 March. STA eventually issued a fresh s68 application, as well as a new request for an extension of time on 1 April 2021, citing the change of legal representation as the principal cause for the delay.

The Court therefore had to consider both STA’s request for a further extension of time, and since the terms of the first extension had been breached, whether relief should be given from the sanction implied by non-observance of the order.

Decision

When considering the merits of the request for extension, the Court applied the well-known factors first identified in the Kalmneft case and formalised in later cases (previously discussed here).

At the same time, the Court was reminded of the factors identified in Denton v H White Ltd [2014] 1 WLR 3926, which are used to evaluate the appropriateness of relief from sanctions under the CPR, namely:

(a) the seriousness and significance of the breach of the court order;

(b) the reasons for the default;

(c) all the circumstances of the case.

Instead of applying these two tests independently, the Court considered that STA’s relief from sanctions would “stand or fall” with its application for an extension of time. Therefore, when setting out its Kalmneft analysis, the Court took into account that this was STA’s second request and that STA had failed to comply with a previous extension order.

The Court reasoned as follows, looking at each Kalmneft factor in turn:

  • Length of the delay: the delay had to be judged against the 28 day period set out in s70(3) of the Act, as well as the length of the first extension. The Court found that the 38 day delay after the initial period, and the 27 days after the deadline of the first extension, were “significant and substantial”. STA’s view that the length of delay should be considered against the duration of the arbitration proceedings and high value of the claim was rejected.
  • Reasonableness of STA’s conduct: the changes in government and the effects of bureaucracy did not by themselves justify the delay. STA also failed to provide specific evidence of the impact it claimed Covid-19 had on its ability to comply with the deadline. In circumstances where delay could be attributable either to “laxity, incompetence or honest mistake” on one hand, or an “informed choice” to disregard a deadline on the other, the Court found that “failure to adduce evidence that the true explanation is the former can legitimately give rise to [an] inference” of the latter. The Court noted that such intentional disregard raises issues of public interest regarding how parties treat the courts and their procedural rules.
  • OFY’s/tribunal’s contribution to delay: there was no evidence that either contributed to the delay.
  • Prejudice caused to OFY: there was prejudice to OFY only in terms of delay to enforcing the Award, although the Court noted that absence of prejudice is not determinative to the outcome of an application.
  • Impact on arbitration: there was none in this case, as the Award was final.
  • Strength of application: while a court will not usually engage in a detailed investigation of the merits of any proposed s68 application in the context of an application for an extension of time, the merits will be relevant where the challenge is clearly weak. Here the grounds for STA’s application were “intrinsically weak” and were attempts to appeal points of law or seek correction of the Award, neither of which are valid grounds for granting a s68 application.
  • Fairness: STA was “solely responsible” for unexplained delays to the applications and the arbitral proceedings themselves. STA had been given ample opportunity to have its application heard.

On these grounds, the Court dismissed STA’s application for extension, and accordingly refused to grant it relief from sanctions under the initial order.

Comment

This judgment provides valuable commentary on the English courts’ application of the Kalmneft factors in deciding applications for extensions of time to challenge awards.

The case demonstrates that an applicant must provide specific and convincing evidence of the reasons for delay and the Court in this case was critical of the explanations provided by STA. A key takeaway is that generic references to the impact of Covid-19 are unlikely to persuade the Court when considering delay. Also of note is the Court’s suggestion that a party without convincing reasons for delay would be better served by admitting that it made an honest mistake, so as to avoid an inference that it wilfully disregarded the Court’s rules.

This decision also highlights that the deadlines under the Act are not just for the benefit of the parties to the arbitral proceedings, but serve the purpose of the Act itself. In fact, as already stated, prejudice to the other party is not a determinative Kalmneft factor. The short timeframes and limited grounds for challenging arbitral awards under the Act protect legal certainty and the finality of the arbitral process, and the Court in this case emphasised that they must not be “ignored for perceived personal advantage.”

It is often the case that arbitral tribunals are slow to sanction failure by parties to comply with procedural deadlines, particularly where the consequences of sanction would be draconian (as here). This decision underlines the point that parties should expect a much more robust approach from the English High Court to procedural issues arising in arbitration-related applications than they may have experienced during the underlying arbitral proceedings.

For more information, please contact Craig Tevendale, Partner, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445
Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

The authors would like to thank Louis Austin for his assistance in preparing this blog post.