ENGLISH COMMERCIAL COURT RELEASES UPDATED S68 AND S69 STATISTICS: CHALLENGES DOWN, AND THE HURDLE FOR SUCCESS REMAINS HIGH

In early February 2020, the Judiciary of England and Wales published the Commercial Court Users’ Group Meeting Report – November 2019 (“2019 Report”). The 2019 Report provides information and statistics relating to challenges to arbitral awards on the grounds of serious procedural irregularity under s68 and appeals on a point of law under s69 Arbitration Act 1996 (“the Act”) for the 2018-2019 court year (October 2018 – July 2019).

The last set of similar statistics were released by the Commercial Court in May 2018 with the publication of the Commercial Court Users’ Group Meeting Report – March 2018 (“2018 Report”), which is discussed in more detail in our previous blog post here.

The latest statistics provide an interesting insight into the English courts’ non-interventionist approach to challenges to arbitral awards.

The tables below set out the statistics for s68 and s69 applications in the 2019 Report for the court years 2018 – 2019 and 2017-2018:

Court year S68 applications
2018 – 2019 (October – July) 19
2017 – 2018 (October – July) 71

 

Court year S69 applications
2018 – 2019 (October – July) 39
2017 – 2018 (October – July) 87

The court year 2018 – 2019 saw significantly fewer challenges to awards on the grounds of serious procedural irregularity under s68 and also fewer appeals on points of law under s69 than the previous court year. The 2019 Report described the steep decrease in applications under s68 as “dramatic” (from 71 to 19). The 2018 – 2019 court year also saw a significant (though less sharp) decline in the number of appeals on a point of law under s69, with fewer than half the number reported for the 2017-2018 court year (a decrease from 87 to 39 appeals). The 2019 Report “expressed hope that parties were hearing the message that the hurdle for these applications is high”.

Section 68 challenges

The 2019 Report was keen to stress that the number of successful applications under s68 for this period were “very few”. Whilst the 2019 Report did not provide the precise number (or details) of the small number of successful challenges under s68, the successful applications referred to for the 2018-2019 court year include P v D [2019] EWHC 1277 (Comm) (see our previous blog post on this case here), where the serious procedural irregularity concerned failure to cross examine a witness on a key issue; and Fleetwood Wanderers Ltd v AFC Fylde Ltd [2018] EWHC 3318 (Comm) where an arbitrator pursuing his own inquiries amounted to a serious irregularity (see our blog post on this case here).

There has historically been a low success rate for s68 challenges, as shown by the previous statistics released in the 2018 Report, which are set out below:

Court year S68 applications Successful s68 challenges
2017 – March 2018 47 0
2016 – 2017 31 0
2015 – 2016 34 1

Section 69 appeals

The 2019 Report demonstrates the continued difficulty of bringing an appeal on the basis that there has been an error of law, commenting that in relation to s69 challenges that have succeeded, “two did last year, and none this year”. There have been a handful of successful s69 challenges in the last calendar year, including Nubiskrug Gmbh v Valla Yachts Ltd [2019] EWHC 1219 (Comm) where the tribunal wrongly found that the applicant (a party to a sale contract) had an obligation to make certain payments to the buyer, and Silverburn Shipping IOM Ltd v Ara Shipping Company LLC [2019] EWHC 376 (Comm) regarding the construction of an obligation in a contract which a tribunal had wrongly held not to be a condition.

The low success rate referred to in the 2019 Report is again in line with the 2018 Report which shows the historically low success rate for s69 appeals. The statistics from the 2018 Report are set out below:

Court year S69 applications Successful s69 appeals
2017 – March 2018 56 1
2016 – 2017 46 0
2015 – 2016 60 4

Comment

These recently released statistics show a notable drop in challenges to arbitral awards under both s68 and s69. In the 2019 Report, the Commercial Court has attributed the decline in the number of challenges to potential applicants being deterred by the high hurdle for success.  It remains to be seen whether statistics for future years will confirm any long term trend in this respect. However, any reduction in the number of weak s68 and s69 challenges brought can only be welcome to arbitration users, given the time and costs involved in unsuccessful appeals.

The courts have repeatedly stated that an award will only be overturned in the most extreme cases, demonstrating the English courts’ pro-arbitration position. The 2019 Report confirms the very high threshold for challenging an arbitral award under either s68 or s69 of the Act and is an important reminder that such challenges should not be undertaken lightly.

For further 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

Indian Supreme Court rules that Indian courts have jurisdiction to hear an application to set aside an award issued in Malaysia

In its recent decision in Union of India v Hardy Exploration and Production (available here), the Supreme Court of India found that a contractual clause stipulating Kuala Lumpur as the ‘venue’ of arbitration did not amount to a choice of juridical seat. While the Indian courts’ jurisdiction to hear set-aside applications will be excluded if the seat of the arbitration is outside India, the Supreme Court found that in this case there was no chosen seat (and the tribunal had not determined a seat), notwithstanding the choice of Kuala Lumpur as the venue for the arbitral proceedings, and the fact that the award was signed in Kuala Lumpur. Since this was a case where the arbitration agreement pre-dated 6 September 2012 (the date of the key Supreme Court ruling in BALCO), it appears that the Court did not find it necessary to positively determine that the seat was in India; the fact that an overseas seat had not been established appears to have been sufficient for the Indian courts to have jurisdiction to hear the application.

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Reliance v Union of India: English Court confirms that there is no serious irregularity under s68(2)(a) if an issue of construction decided by the tribunal is “squarely in play”

In Reliance Industries Limited & Ors v The Union of India [2018] EWHC 822 (Comm) the English commercial court (the Court) considered a number of challenges to parts of an arbitration award brought under sections 67, 68 and 69 of the Arbitration Act 1996 (the  Act).

The decision provides useful guidance regarding the requirements to be satisfied should a party wish to challenge an award due to a “serious irregularity” under the Act. In particular, the Court confirmed that the general duty under s33 of the Act to give each party a reasonable opportunity to present its case was satisfied if the “essential building blocks” of the tribunal’s analysis and reasoning were in play in relation to an issue, even where the argument (in this case on a point of construction) was not articulated in the way adopted by the tribunal.

In addition to the issues discussed in this blog post, the Court considered the foreign act of state doctrine. This challenge is discussed in a post on our Public International Law Notes blog here.

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HKIAC 2017 CASE STATISTICS

The HKIAC has recently published its case statistics for 2017, showing a continued healthy demand for its services. The HKIAC saw a 15.7% increase in its caseload compared to 2016, with the total amount in dispute in HKIAC arbitrations doubling since last year. The statistics demonstrate that HKIAC maintains its position as one of the world’s leading arbitral institutions, serving parties throughout Asia and beyond. Continue reading

Delhi High Court reaffirms pro-arbitration approach in two recent judgments

In two recent judgments, the Delhi High Court (the “Court“) dismissed challenges to arbitral awards and emphasised its reluctance to interfere with decisions of arbitral tribunals, except in limited circumstances. In NHAI v M/S. Bsc-Rbm-Pati Joint Venture, the Court strongly criticised unnecessary challenges to awards, especially by public sector undertakings, noting that it wasted valuable judicial time. Carrying on with the sentiment to not interfere, in Delhi Metro Rail Corporation Limited v Delhi Airport Metro Express Private Limited, the Court stated that it would not interfere with an arbitral decision if the view taken by a tribunal was plausible, even where an alternative view was possible.

A brief summary of both cases can be found below.

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Astro prevails again against First Media (Lippo) in Hong Kong

In the long running Astro/First Media (also known as Lippo) enforcement dispute, First Media has failed to obtain leave to appeal to the Court of Final Appeal in Hong Kong in respect of First Media's recent loss in the Court of Appeal (Astro v First Media CACV 272/2015).  As a result, First Media must pay to Astro sums due under five Singapore arbitration awards.  Having failed to obtain leave from the Court of Appeal on 29 March 2017, it is not yet known whether First Media will seek leave to appeal directly from the Court of Final Appeal.

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UK Supreme Court rules that no security may be ordered when challenging enforcement of arbitration awards

The UK Supreme Court has overturned a Court of Appeal decision requiring Nigerian National Petroleum Corporation ("NNPC") to provide US$ 100m in security while the case was remitted to the Commercial Court to decide on IPCO (Nigeria) Limited's ("IPCO") challenges to enforcement of an award. The Supreme Court held that while the English courts had the express power to make such orders for security under section 103(5) of the Arbitration Act 1996 (the "Act") in the context of an adjournment pending a challenge to the award in the jurisdiction where it was made, the present proceedings rather concerned a challenge to the enforcement of the award under section 103(3) of the Act. As such, no power to order security was available under the Act or the scheme of the New York Convention 1958 (the "Convention").: IPCO (Nigeria) Limited v Nigerian National Petroleum Corporation [2017] UKSC 16.

The Supreme Court also provided guidance on the relationship between the Act and the New York Convention (the "Convention"), on which the relevant sections of the Act are based.

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U.S. District Court allows Gold Reserve to enforce its award against Venezuela in Washington, D.C.: Gold Reserve Inc., v. Bolivarian Republic of Venezuela

In September 2014, Gold Reserve won a significant arbitral award ("Award") worth more than US$760 million (and counting, because of post-award interest) against Venezuela for breach of investor-protection standards under the Canada-Venezuela bilateral investment treaty ("Treaty"). In the arbitration, Gold Reserve successfully argued that Venezuela's revocation of certain licenses for gold extraction held by Gold Reserve's subsidiary violated the fair and equitable treatment, full protection and security and expropriation standards of the Treaty. (For further background to the case, see our earlier blog post here.)

Subsequently, two proceedings were filed before the Paris Court of Appeal, being the court at the seat of the arbitration. When Venezuela applied to have the award set aside, Gold Reserve countered that application with a petition to confirm the award. The two procedures differ in scope and length. Although the Paris Court confirmed the award (as previously reported in our blog here), the decision on Venezuela's application to set aside the award remains pending, since the set-aside proceeding entails a more detailed review of the Tribunal's decision-making.

While the set-aside proceeding continues in Paris, Gold Reserve has sought to enforce the award elsewhere, including in Luxembourg and Washington, D.C. The Luxembourg court granted a stay of the enforcement request pending the completion of the Parisian proceedings. However, on November 20, 2015, the U.S. District Court for the District of Columbia granted Gold Reserve's request for enforcement in Washington, D.C. The U.S. District Court, in line with the general pro-enforcement approach of the U.S. courts in their application of the New York Convention, found that Venezuela could neither establish any procedural defects in the arbitration nor prove that enforcement of the Award would violate public policy. Accordingly, Gold Reserve is able to satisfy the Award against Venezuela's assets in Washington, D.C., without waiting for the completion of Venezuela's set-aside proceeding in Paris.

The principal lessons from the U.S. District Court's decision are:

  1. The Court will give "substantial deference" to the Tribunal's determination on the scope of its jurisdiction.
  2. Failure to raise an issue squarely and distinctly during the arbitral proceedings may constitute a waiver of the right to raise the same issue before an enforcing court.
  3. In order to argue successfully that the inequitable allocation of time to the parties led to a due process violation, it is necessary to show exactly what extra time was required for and how the denial of extra time prevented a party from presenting its case.
  4. The public policy exception to the enforcement of arbitral awards under the New York Convention, as applied by the U.S. courts, is extremely narrow.
  5. The U.S. courts, and the U.S. District Court for the District of Columbia in particular, have been willing to enforce foreign awards despite parallel proceedings challenging these awards before the courts at the seat of the arbitration.

Each of these points is discussed below.

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Hong Kong court confirms principles of enforcement

In KB v S (HCCT 13/2015), Mimmie Chan J  of the Hong Kong Court of First Instance dismissed and struck out an application to set aside an order to enforce an arbitral award, where the application was submitted out of time and without a proper supporting affirmation. 

In her judgment, Chan J sets out ten general principles that the Hong Kong courts will apply when dealing with enforcement of arbitral awards. The principles endorse the need for minimal judicial intervention, as established by the leading case Grand Pacific Holdings Ltd v Pacific China Holdings Ltd [2012] 4 HKLRD 1 (CA). Herbert Smith Freehills acted for the successful award creditor in that case.

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Remission or Set Aside for an arbitral award where a challenge for serious irregularity is made out before the English courts?

In the case of The Secretary of State for the Home Department and Raytheon Systems Limited [2015] EWHC 311 (TCC) and [2014] EWHC 4375 (TCC), the English Court has set aside an arbitral award for serious irregularity under s68(2)(d).

Mr Justice Akenhead found that the Tribunal in question had failed to consider two important issues (one of liability and another of quantum) such that a serious irregularity had occurred which had caused substantial injustice to the claimant. In a later hearing, the judge considered the appropriate relief for that serious irregularity, concluding that the case was one in which it was appropriate to set aside the Award and for the case heard by a new Tribunal.

The two decisions add to the relatively sparse caselaw on these two provisions of the Act. The first is one of very few to consider and make a finding of serious irregularity under s68(2)(d). In grappling with when it is “inappropriate” to remit a matter back to the original arbitral tribunal, the second decision provides helpful parameters for when set-aside is the correct relief for such a finding. Continue reading