UK Supreme Court judgment in Halliburton v Chubb clarifies English law on arbitrator apparent bias

The UK Supreme Court has handed down its judgment in Halliburton Company (Appellant) v Chubb Bermuda Insurance Ltd [2020] UKSC 48, which is the most significant decision on English arbitration law in nearly a decade.

The Halliburton judgment is now the leading English law case on arbitrator conflicts. Importantly, the decision has clarified how apparent bias will be assessed by the English courts, refining the test in the context of arbitration. While the arbitrator challenge was not successful in this case, the judgment has re-emphasised the importance of arbitrator impartiality in English-seated arbitration.      

The case was notable for a significant number of arbitral institutions and organisations being given permission by the Court to intervene, with submissions made by the LCIA, ICC, CIArb, LMAA and GAFTA.

Background 

Claims arising out of the Deepwater Horizon incident were made against Halliburton, which had provided offshore services in relation to the project. Halliburton then sought to claim in turn under its excess liability insurance policy with Chubb. Chubb rejected the claim and in January 2015 Halliburton commenced arbitration against Chubb. The claim was brought under the Bermuda Form policy in question, which was governed by New York law and provided for London-seated ad hoc arbitration.

The parties were unable to agree on the selection of the presiding arbitrator and the English High Court appointed Kenneth Rokison QC in June 2015. Mr Rokison had been proposed by Chubb, but Halliburton had opposed his appointment on the grounds that Mr Rokison was an English lawyer, whereas the policy was governed by New York law.

Before he was appointed in June 2015, Mr Rokison disclosed that he had previously been an arbitrator in arbitrations involving Chubb, including some appointments on behalf of Chubb. The judgment does not set out the number of appointments involved, or the timescales. He also disclosed that he was acting as arbitrator in relation to two current references involving Chubb.

After Mr Rokison took up his appointment in the arbitration between Halliburton and Chubb, he accepted two appointments in additional arbitrations relating to the Deepwater Horizon incident: (a) in December 2015, he was appointed by Chubb in an arbitration relating to a claim under the same excess liability cover, which Chubb had sold to another insured party, Transocean; and (b) in August 2016, he was appointed by Transocean, in an arbitration relating to a claim Transocean was bringing against a different insurer that related to the same layer of insurance. Mr Rokison did not disclose the December 2015 and August 2016 appointments to Halliburton, but Halliburton became aware of them in November 2016.

Halliburton then asked Mr Rokison to resign, but he stated that he did not feel he could do so, as he had been appointed by the court. Mr Rokison noted that the issues under consideration were neither the same nor similar. He stated that he had been independent and impartial throughout and that this would continue to be the case. Halliburton then made an application to the English court for his removal under s24 of the Arbitration Act 1996. The application was unsuccessful and Halliburton then appealed to the Court of Appeal, which also rejected the challenge. Halliburton appealed to the Supreme Court.

The Supreme Court appeal

The two main issues before the Supreme Court were:

  • whether and to what extent an arbitrator is entitled to accept appointments in multiple arbitrations relating to the same or overlapping matters and where there is only one common party, without this resulting in an appearance of bias; and
  • whether and to what extent the arbitrator could accept multiple appointments in this way without providing disclosure.

Halliburton took the position that there was apparent unconscious bias on the part of Mr Rokison. Halliburton’s case was based on the suggestion that the situation “gave Chubb the unfair advantage of being a common party to two related arbitrations with a joint arbitrator while Halliburton was ignorant of the proceedings” in the later arbitrations and “thus unaware whether and to what extent he would be influenced in reference 1 by the arguments and evidence in reference 2”. Halliburton contended that Chubb would be able to communicate with the arbitrator, for example via submissions and evidence submitted in the later proceedings, on questions that might be relevant to the arbitration between Halliburton and Chubb. Haliburton took the position that apparent bias was also made out by Mr Rokison’s failure to disclose his later appointments to Halliburton. There was also a suggestion that Mr Rokison “did not pay proper regard to Halliburton’s interest in the fairness of the procedure”.

Supreme Court decision

The Supreme Court emphasised the importance of impartiality in arbitration, highlighting that impartiality had always been a “cardinal duty” for arbitrators. Given that there was no allegation that the arbitrator was actually biased, the court was only concerned with whether there was an appearance of bias. It was well established that the correct legal test was “whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.

The Supreme Court considered how the hypothetical observer is taken to be “informed”. This meant, quoting an earlier case, that “before she takes a balanced approach to any information she is given, she will take the trouble to inform herself on all matters that are relevant…She is fair-minded, so she will appreciate that the context forms an important part of the material which she must consider before passing judgment.” When the apparent bias test is applied to arbitrators, the distinctive features of arbitration must therefore be taken into account. This includes a consideration of the private nature of arbitration, and the very limited rights of appeal. The Supreme Court also referred to the appointment process for arbitrators, noting the potential for party nomination and that there may be a “financial interest in obtaining further appointments as arbitrator”. It also observed that arbitrators may be non-lawyers with only limited experience of arbitration and may be from a variety of jurisdictions and legal traditions, with a range of views on arbitrator ethics.

The Supreme Court emphasised that, due to the private nature of arbitration, where an arbitrator is appointed in relation to multiple overlapping references the non-common party cannot discover what evidence or submissions have been put before the tribunal, or the arbitrator’s response. The Court also had regard to the range of understandings in relation to the role and duties of party-appointed arbitrators, recognising that some parties may expect party-nominated arbitrators to be pre-disposed towards their nominating parties, while the chair has a particular role to play in ensuring the tribunal acts fairly. While taking these differing perspectives into account, the duty of impartiality applied in the same way to every member of the tribunal and “the party-appointed arbitrator in English law is expected to come up to precisely the same high standards of fairness and impartiality as the person chairing the tribunal”.

While the professional reputation and experience of an individual arbitrator was a relevant consideration in assessing whether there was apparent bias, the Court noted this was likely to be a factor accorded only limited weight.

Duty of disclosure

The Supreme Court confirmed that an arbitrator is under a duty to disclose facts and circumstances which would or might reasonably give rise to the appearance of bias. The Supreme Court held that compliance with this duty should be assessed with regard to the circumstances at the time the disclosure fell to be made.

The Court noted that the LCIA, ICC and CIArb, as organisations having “an interest in the integrity and reputation of English-seated arbitration”, had all argued in favour of the recognition of a legal duty of disclosure. The Court stated that this legal duty furthered transparency in arbitration and was in alignment with the best practice set out in the IBA Guidelines and the approach taken by arbitration institutions such as the LCIA and ICC. The Court said that the IBA Guidelines “assist the court in identifying what is an unacceptable conflict of interest and what matters may require disclosure” but emphasised that they are non-binding.

The Supreme Court stated that an arbitrator may have to disclose acceptance of appointments in multiple overlapping references with only one common party, depending upon the customs and practice of the type of arbitration in question. The judgment explores in some detail the need to consider the duty of confidentiality in determining what information about potential conflicts may be disclosed.

The Court also explored the relationship between the duty to disclose and the duty of impartiality and concluded that failure to disclose will be one factor which the fair-minded and informed observer will take into account in considering whether there was a real possibility of bias. However, the Court held that questions of disclosure and apparent bias fell to be assessed at different times. Whereas the question of whether there was a failure to disclose was analysed as at the time the alleged duty of disclosure arose, the question of whether the relevant circumstances in any case amount to apparent bias must be assessed at the time of the hearing of the challenge to the arbitrator.

The Supreme Court held that failure to disclose overlapping references is capable of demonstrating “a lack of regard to the interests of the non-common party” and may in certain circumstances therefore constitute apparent bias.

Rejection of challenge

The Court held that, in the context of the Bermuda Form arbitration between Halliburton and Chubb, the Arbitrator was required to disclose the multiple appointments in question. This was because there was no established custom or practice in Bermuda Form arbitration of allowing an arbitrator to take on multiple and overlapping appointments without disclosure. Mr Rokison was therefore under a legal duty to disclose his appointment in the subsequent overlapping proceedings because, at the time of appointment in those arbitrations, those appointments might reasonably give rise to the real possibility of bias.

However, the Supreme Court concluded that the fair-minded and informed observer would not determine that there was a real possibility of bias. This was because:

  1. At the time the disclosure fell to be made there had been uncertainty under English law about the existence and scope of an arbitrator’s duty of disclosure;
  2. The time sequence of the arbitrations may have been an explanation for the non-disclosure to Halliburton;
  3. Mr Rokison had explained that both the subsequent overlapping arbitrations would be resolved by way of preliminary issue, which meant there would in fact be no overlapping evidence or submissions. Mr Rokison had offered to resign from the subsequent arbitrations if that was not the case and it was therefore unlikely that Chubb would benefit as a result of the overlapping arbitrations;
  4. Mr Rokison had not received any secret financial benefit; and
  5. Mr Rokison’s response to the challenge had been “courteous, temperate and fair…and there is no evidence that he bore any animus towards Halliburton as a result”.

Comment

This judgment has emphasised the importance of arbitrator impartiality and has both clarified and refined the law on apparent bias in the context of arbitration. The case is of real significance for the wider international arbitration community, and should allay potential concerns as to London’s status as a leading seat of arbitration.

The decision is the latest case to demonstrate the robust approach of the English courts to arbitrator challenges, in line with the courts’ non-interventionist and pro-arbitration stance. In this case the Supreme Court noted that challenges of this kind have “rarely succeeded” and also noted that the objective observer at the heart of the apparent bias test will be “alive to the possibility of opportunistic or tactical challenges”.

For more information, please contact Craig Tevendale, Head of International Arbitration London, Chris Parker, Partner, Vanessa Naish, Professional Support Consultant, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

Craig Tevendale

Craig Tevendale
Head of International Arbitration London
+44 20 7466 2445

Chris Parker

Chris Parker
Partner
+44 20 7466 2767

Vanessa Naish

Vanessa Naish
Professional Support Consultant
+44 20 7466 2112

Rebecca Warder

Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

LCAM/HSF MEDIATION IN ARBITRATION SURVEY

Herbert Smith Freehills is joining with the London Chamber of Arbitration and Mediation to conduct a new Mediation in Arbitration Survey.

The survey should provide a valuable opportunity to ascertain the current take-up of mediation in international arbitration. The survey also aims to identify the stages of the dispute at which such mediations most commonly occur, their claim values and settlement rates.

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ETHIOPIA ACCEDES TO THE NEW YORK CONVENTION

On 24 August 2020 Ethiopia acceded to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention“). Ethiopia will become the 165th state party to the Convention, following the recent accession of Tonga in June this year. Under Article XII (2), the Convention will come into force for Ethiopia on 22 November 2020.

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English High Court dismisses challenge to enforcement of award where award debtor allegedly unable to engage a hearing advocate

In a recent application (Shell Energy Europe Limited v Meta Energia SpA [2020] EWHC 1799 (Comm)), the English court dismissed a challenge to the court’s previous order under s66 of the Arbitration Act 1996 (“the Act”) granting leave to enforce an award. The challenge was made on the ground that the applicant was not able to participate in the merits hearing in the arbitration, due to difficulty in securing an advocate. In circumstances where the evidence “fell well short” of persuading the Court that the applicant had no choice but to cease its hearing participation, the challenge was unsuccessful.

Background

The applicant in this case, Meta Energia SpA (“Meta”) had participated fully in the underlying LCIA arbitration until the last stage. Less than 10 days ahead of the planned two-day final merits hearing, Meta dismissed its entire legal team, saying this was because it was unsatisfied with the way the legal team had pursued or presented the defence.

Meta was granted a hearing adjournment of two weeks and instructed new solicitors, but said that it was unable to instruct new leading counsel as advocate.

Meta’s new solicitors attended the final hearing, but did not participate other than to make a brief submission that Meta was unable to present its case.

The arbitrators considered whether it was just and appropriate to continue and concluded that it was. The claimant’s legal team reminded the arbitrators of points of substance raised against the claimant, based upon Meta’s written submissions on the merits.

The arbitrators afforded Meta a further period of time to engage with the merits, if it chose to do so after receiving the hearing transcript. Meta did not make any submissions on the merits and did not seek additional time to do so, although it did make a number of comments on costs. The award was then issued in December 2019.

The claimant sought to enforce the award in Italy under the New York Convention, but Meta attempted to resist enforcement there on the basis that Meta had been unable to present its case in the arbitration (Article V.1(b)). The claimant also sought to enforce the award in the UK and in May 2020 had obtained the High Court’s leave pursuant to s66 of the Act to enter judgment in the terms of the award (the “May 2020 enforcement order”). Meta subsequently applied to the Court to set aside the May 2020 enforcement.

S66 of the Act

The summary procedure under s66 of the Act can be used to enforce arbitral awards in arbitrations seated in England and elsewhere. An award creditor can apply to the English court under s66 to enforce an award in the same way as an English court judgment and may also seek judgment in terms of the award. Applications under s66 will be refused either where the award debtor can show that the tribunal lacked substantive jurisdiction (s66(3) of the Act), or where the court refuses the application on discretionary grounds.

In this case Meta sought to persuade the court that there was a “’due process’ complaint”…as a discretionary reason why… [the award] should not be enforced under s.66”.

Court’s decision

The Court was unsympathetic to Meta’s argument that it was not able to participate in the merits hearing because it was unable to be represented by leading counsel.

The Court noted that there was no clarity as to how the applicant’s defence in the arbitration could have been improved or set out differently by any new legal team. In addition, Meta had said it wanted to instruct leading counsel to provide the advocacy at the hearing and ”took the view that it would not participate on the merits unless it could be represented by leading counsel”. Despite this, the Court took the view that Meta could have been appropriately represented at the merits hearing by suitable junior counsel.  The Court went on further to say that Meta did not need to use the Bar and could have instructed suitable solicitors for the advocacy, there being “highly skilled and experienced international arbitration practitioners, not just the Bar”, able to provide advocacy services in arbitration.

No evidence had been put before the court to explain Meta’s decision not to provide written submissions in response to the receipt of the hearing transcript, or to explain how Meta’s position had allegedly been worsened by the hearing having gone ahead.

The Court also noted that no challenge to the award had been made under s68 of the Act, which would be the “normal means to pursue a complaint of lack of due process or other procedural unfairness”. It was in any event clear that there was no arguable basis for any s68 challenge. The arbitrators had been “scrupulously even-handed” and the process “unimpeachably fair”. Meta could have presented and fully developed its case, but simply chose not to do so.

Accordingly, the Court dismissed the challenge, and the May 2020 enforcement order was confirmed.

Comment

This judgment confirms the pro-arbitration stance of the English courts in relation to applications for enforcement under s66 of the Act. While the courts will refuse applications where enforcement would not be in the interests of justice, the courts will not exercise their discretion to deny enforcement on questionable grounds.

For more information, please contact Chris Parker, Partner, Rebecca Warder, Professional Support Lawyer, Peter Chen, Associate, or your usual Herbert Smith Freehills contact.

Chris Parker

Chris Parker
Partner
+44 20 7466 2767

Rebecca Warder

Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

Peter Chen

Peter Chen
Associate
+44 20 7466 3868

NAVIGATING THE LOW OIL PRICE ENVIRONMENT PODCAST: ALLOCATING CONTRACTUAL RISK AND REWARD WITH HOST STATES

Oil prices have recently reached historic lows and oil companies are faced with a number of potential legal issues as the prices impact their trading and operational agreements. In this podcast series, our energy disputes lawyers consider some of the key issues triggered by the current low oil price environment, looking in detail at a variety of topics around:

  • Host states: allocating value in challenging times
  • Joint Venture arrangements
  • Operational challenges and other contracts

Low commodity prices cause hardship for governments in resource rich countries, as well as the businesses commercialising those resources. In tough times, governments may be prompted to extract a greater share of value from projects to try to balance against a loss of revenue. In the first episode, Craig Tevendale, Chris Parker and Charlie Morgan discuss the key contractual mechanisms for allocating risk and reward with States, and how best these challenges can be addressed.

The episode can be found at the link here.

For more information, please contact Craig Tevendale, Partner, Chris Parker, Partner, Charlie Morgan, Senior Associate, or your usual Herbert Smith Freehills contact.

Craig Tevendale

Craig Tevendale
Partner
+44 20 7466 2445

Chris Parker

Chris Parker
Partner
+44 20 7466 2767

Charlie Morgan

Charlie Morgan
Senior Associate
+44 20 7466 2733

ENGLISH HIGH COURT SETS ASIDE LMAA AWARD ON THE BASIS THAT THE ARBITRAL TRIBUNAL LACKED SUBSTANTIVE JURISDICTION

In MVV Environment Davenport Ltd v NTO Shipping GMBH & CO, MV Nortrader [2020] EWHC 1371 Comm, the High Court (the “Court”) set aside an LMAA award on jurisdiction (the “Award”) under s67 Arbitration Act 1996 (the “Act“) on the basis that the arbitral tribunal (the “Tribunal“) lacked substantive jurisdiction over the dispute.

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CLAIMANT FAILS TO RECOVER THE COSTS OF ITS APPLICATION TO REMOVE AN ARBITRATOR, WHERE THE ARBITRATOR HAD RESIGNED BEFORE THE TRIAL IN THE ENGLISH HIGH COURT

In a recent decision (available on an anonymised basis here), the English High Court (the “Court”) considered a claimant (“C”)’s claim for its costs of an application under section 24 (“s24”) of the Arbitration Act 1996 (the “Arbitration Act”) for the removal of an arbitrator (“X”) from LCIA arbitration proceedings (the “LCIA Arbitration”). X had already resigned and C’s claim for costs remained the only issue to be determined by the Court. The decision is of interest for its focus on a rarely invoked provision of the Arbitration Act, and the unusual circumstances surrounding the claim for costs.

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ENGLISH HIGH COURT GRANTS CONDITIONAL STAY OF IP CLAIM

In an example of an interaction between intellectual property (“IP”) claims and arbitration, the English High Court granted a conditional stay of the claimants’ IP claim pursuant to s9 of the Arbitration Act 1996 (the “Act”) and its inherent case management jurisdiction. In AJA Registrars Ltd and another company v AJA Europe Ltd [2020] EWHC 883 (Ch), the claimants argued that AJA Europe Limited (“AJA Europe”) was using their logo in the UK in the same markets in which one of the claimants, AJA Registrars Limited (“AJA Registrars”) operated, thereby misrepresenting that AJA Europe’s business or services were the business or services of AJA Registrars. AJA Europe successfully applied for a stay, arguing that the underlying dispute between the parties originated from agreements containing an arbitration clause.

Background

The parties

AJA Registrars and AJA Europe entered into a number of agreements, which aligned their businesses in various territories and granted licences to use IP and other rights. AJA Registrars’s parent company, Holding Socotec S.A.S. (“Socotec”, and together with AJA Registrars, the “Claimants”), acquired AJA Registrars’s business in 2018.

The agreements

In particular, AJA Registrars and AJA Europe entered into:

  • an agreement, under which AJA Registrars granted to AJA Europe, until its termination in 2018, a revocable licence to use the “AJA” name (the “License”) in a number of territories, and which prohibited AJA Europe from registering logos or trade marks without AJA Registrars’s consent, which was subsequently amended (the “2014 Agreement”); and
  • an agreement, under which AJA Europe granted to AJA Registrars, until its termination in 2019, the Licence in the UK, and which prohibited AJA Registrars from registering logos and trade marks without AJA Europe’s consent (the “2015 Agreement”, and together with the 2014 Agreement, the “Agreements”).

Each Agreement contained an arbitration clause providing that any dispute or claim arising out of the Agreements was to be referred to arbitration. Socotec was not a party to the Agreements.

The trade marks

In 2018, a UK trade mark using “AJA” in a design was registered in AJA Europe’s name (“AJA Europe’s Trade Mark”). In the meantime, international trade marks using “AJA” were registered in Socotec’s name in 2018 and 2019 (“Socotec’s Trade Marks”).

The IP claim

The Claimants initiated proceedings before the High Court, alleging: (i) infringement by AJA Europe in the UK of Socotec’s Trade Marks; (ii) passing off in the UK by AJA Europe as AJA Registrars’s business or services; and (iii) invalidity of AJA Europe’s Trade Mark.

Stay application

AJA Europe successfully applied to stay the Claimants’ claim, relying on s9 of the Act, and, alternatively, the court’s inherent case management powers. It argued that the dispute was whether and to what extent the Claimants gave AJA Europe permission to use the “AJA” name, and whether any such permission had been terminated. It then argued that this dispute should have been referred to arbitration under the Agreements.

The court’s decision on the stay application

The court concluded that the main issues in the IP claim were (i) the underlying ownership of the “AJA” name rights in the UK; (ii) whether AJA Registrars exclusively owned the goodwill in the UK businesses associated with that name; and (iii) whether AJA Europe’s prior rights meant that there was no misrepresentation. The court noted that although the issues arose in a claim in tort, they reflected issues about entitlement and rights under the Agreements. Specifically, whereas AJA Registrars sought to rely on the 2014 Agreement, AJA Europe’s defence ultimately relied, in particular, on the 2015 Agreement. The court therefore decided that the passing off claim was brought in respect of a matter which was to be referred to arbitration under the 2015 Agreement.

The court noted that there was a sufficiently close connection between the issues in the tort claim and the dispute about the ownership that rational businessmen were likely to have intended such a dispute to be decided (like a contractual dispute) by arbitration, applying the test in Microsoft Mobile Oy v Sony Europe Limited [2017] EWHC 374 (Ch).

Conditions of stay

The court concluded that AJA Registrars’s claim should be stayed under s9 of the Act. Given that there was no arbitration agreement between AJA Europe and Socotec, the court could not stay Socotec’s claim under s9. However the court decided that Socotec’s claim should also be stayed as a matter of discretion and good case management, in order to avoid parallel proceedings.

Both stays were conditional:

  • AJA Registrars’s stay was conditional on AJA Europe appointing an arbitrator in the arbitration proceedings. The court noted that the reference had to relate to the determination of the ownership rights to use “AJA” under the agreements, or otherwise, but it may include other issues.
  • The stay in respect of Socotec’s claim was conditional upon (i) AJA Registrars’s stay being operational; and (ii) AJA Europe sending to the Claimants a draft defence to Socotec’s claim (as AJA Europe’s defence had emerged in an “unsatisfactory and piecemeal way”). The court accepted that AJA Europe should not be compelled to disclose the substance of the dispute to the public, given that the matters are to be arbitrated, and therefore remain confidential.

Arbitrability of IP claims

The court also noted that there was “the faintest of issues” about whether an IP claim could be referred to arbitration, on the basis that there was certain relief that only the court or the UK Intellectual Property Office could grant. The court reiterated that (i) this is not an impediment to an arbitrator determining the substance of the dispute and the underlying issues; and (ii) as part of the award the arbitrator can direct the parties to make necessary applications for the required relief.

Comment

This case is an interesting example of the potential interplay between IP claims and arbitration. While IP claims are mainly litigated in national courts, there has been an increase in the use of arbitration clauses in licence agreements and, therefore, of the arbitration of IP disputes. The decision confirms that the English courts will usually view contractual IP disputes as arbitrable.

For more information, please contact Chris Parker, Partner, Olga Dementyeva, Associate, or your usual Herbert Smith Freehills contact.

Chris Parker

Chris Parker
Partner
+44 20 7466 2767

Olga Dementyeva

Olga Dementyeva
Associate
+44 20 7466 7644

 

PALAU ACCEDES TO THE 1958 NEW YORK CONVENTION

On 31 March 2020, Palau acceded to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention” or the “Convention“). With this, Palau becomes the 163rd State party to the Convention, following the recent accessions of Ethiopia, the Seychelles, the Maldives and Papua New Guinea. Palau deposited its instrument of accession on 31 March 2020 and, under Article XII (2) of the Convention, it will come into force on 29 June 2020, 90 days thereafter.

Consistent with Article I.3 of the New York Convention, contracting States are able to ratify or accede subject to certain reservations. Palau is reported by the Secretary-General of the United Nations to have acceded to the New York Convention subject to two common reservations. Palau will apply the Convention (i) on the basis of reciprocity to the recognition and enforcement of arbitral awards made only in the territory of another contracting State, and (ii) only to differences arising out of legal relationships, whether contractual or not, which are considered commercial under the laws of the Republic of Palau.

Palau’s accession is also subject to the Convention only being applicable to arbitral awards concluded after the date of Palau’s accession. The implication of this provision is that any outstanding awards made prior to the Convention coming into effect on 29 June 2020 will not be enforceable in Palau under the Convention. Parties seeking to enforce such awards will need to rely on Palau’s existing domestic enforcement regime.

For more information please contact Chris Parker, Partner, Maguelonne de Brugiere, Senior Associate, or your usual Herbert Smith Freehills contact.

Chris Parker

Chris Parker
Partner
+44 20 7466 2767

Maguelonne de Brugiere

Maguelonne de Brugiere
Senior Associate
+44 20 7466 7488

AWARD CREDITORS SUCCESSFULLY CHALLENGE AWARD TO CLARIFY IDENTITY OF A PARTY

In the recent and unusual case of Xstrata Coal Queensland P Ltd (Company Number 098156702) (aka Rolleston Coal Holding PTY Ltd) & Anor v Benxi Iron & Steel (Group) International Economic & Trading Co Ltd [2020] EWHC 324 (Comm), the award creditors challenged an arbitral award under s68 of the Arbitration Act 1996 (the “Act”). The application was made after the award creditors’ attempt to enforce the award in China under the New York Convention had failed. The English Court found that there was uncertainty or ambiguity as to the effect of the award, relating to the identity of a party to the relevant sale contract and the arbitration agreement contained within the contract.

This decision highlights the risk that parties may seek to exploit alleged ambiguities in the identity of a party at the enforcement stage, even if the issue has not been raised in the arbitration itself. The case is accordingly an important reminder of the need to ensure that any known ambiguity in the identification of any party has been dealt with in the course of submissions, and to seek to have this covered in the award.

Background 

The dispute arose in relation to a contract for the sale of coking coal. The resulting award was held to be unenforceable in China, as the award debtor successfully argued that one of the claimants named in the award was not a party to the contract or the arbitration agreement.

The English Court then granted the award creditors an extension of time under s79 of the Act to make an application to the tribunal under Article 27 of the LCIA Rules to correct the award (in Xstrata Coal Queensland Pty Ltd v Benxi Iron and Steel (Group) International Economic and Trading Co Ltd [2016] EWHC 2022 (Comm), which we discussed in our earlier blog post here)

However, the Tribunal denied the award creditors’ application for a correction of the award. It was emphasised that the issue of the identity of the relevant party had never been covered during the proceedings and so was not the subject of any finding in the award. The Tribunal also stated that any application under Article 27 “is limited to correction of computational, clerical and typographical errors or errors of a similar nature.” Any subsequent finding in relation to the identity of a contracting party would be an “addition to the Award, not a mere correction.”

High Court decision

The award creditors then made an application to the English Court challenging the award for serious irregularity, under sections 68(2)(f) and 68(2)(c) of the Act, on 19 December 2016. There was a substantial delay at this stage, due to difficulties in effecting service in China. When the case ultimately came before the Court, it considered two key questions; (i) whether the application had been made in time; and (ii) whether s68(2)(f) had been engaged.

Was the application brought in time?

The application was opposed on the basis that the s68 challenge was out of time under s70(3) of the Act.

S70(3) requires any challenge to an Award under s68 to be brought within 28 days of the award or, if there has been any arbitral process of appeal or review, the date when the applicant was notified of the result. The award creditors argued that the s68 application was made within time, as the 28 day period only ran from the date that the tribunal had rejected the application under Article 27 of the LCIA Rules.

The Court assessed whether the relevant date for the purposes of the s70 time limit was the date on which the decision that there should be no correction is made known, or the date of the Award. The Court found that where a material application is made to correct an award under s57 of the Act or an equivalent agreed process, such as Article 27 of the LCIA Rules, the 28 day time period will begin to run from the date when the decision on the application is known to the parties.

The Court was also required to determine whether the application under Article 27 was material to the s68 application. The Court decided that it was material and in this context it was emphasised that the Article 27 application was permitted by the Court in 2016, “specifically in order to seek that the Arbitrator should clarify a matter which rendered the Award unclear or ambiguous.” That Article 27 application was found to be directly relevant to the s68 application, as “had it been successful, there would have been no basis for the present application.”

Accordingly, the s68 application was found to have been brought in time, within the 28 day period specified in s70(3).

Had s68(2)(f) been engaged?

The award creditors argued that there was uncertainty or ambiguity as to the effect of the Award, which had not been resolved by the Article 27 application. They argued that the uncertainty or ambiguity in question had caused, or would cause, substantial injustice by making it either impossible or difficult for the award to be enforced. The award debtor took the position that there was in fact no such uncertainty or ambiguity and that, if there had been any uncertainty or ambiguity this was not in respect of the effect of the award, but only related to its reasoning.

On this point, the Court found in favour of the award creditors, noting that “Section 68 is not…confined exclusively to cases in which the tribunal has gone wrong in its conduct of the arbitration, if that is understood to mean that the tribunal has done something which it should not have done in the circumstances which were presented to it.”  The Court determined that if an award was open to being misunderstood by an enforcing court then that award could be uncertain or ambiguous, even where English lawyers would understand the award’s meaning and effect. In this case enforcement had been refused by the court in China, demonstrating that the award was ambiguous.

The award debtor argued that allowing ambiguity or uncertainty under s68(2)(f) to encompass correction of the identity of a party “would open the door to unmeritorious applications”, where the award had a “clear meaning and effect as a matter of the curial law.” However, the Court did not consider this a real danger, as future award creditors would have to show that the ambiguity or uncertainty either had already caused, or would cause, an enforcing court to fail to enforce the award in line with what the English Court would consider to be its true meaning and effect.

Accordingly, the Court granted the Claimants’ application under s68(2)(f), and remitted the award to the tribunal to reconsider the identity of the parties to the contract. Given the successful finding under s68(2)(f), the Court did not see any need to deal with the alternative application under s68(2)(c).

Comment

This is a relatively rare example of a successful challenge under s68 of the Act. The decision demonstrates the English courts’ willingness to deal robustly with ambiguities or uncertainties in awards where these amount to serious irregularity under s68. The judgment also reconfirms the high threshold in respect of a challenge to an award for alleged uncertainty or ambiguity under s68(2)(f).

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

Chris Parker

Chris Parker
Partner
+44 20 7466 2767

Rebecca Warder

Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418