English Commercial Court rules that a party must act “promptly” in raising a challenge to the effectiveness of arbitral proceedings, and rejects application for set aside of partial award

Summary

In Radisson Hotels APS Denmark v Hayat Otel Işletmeciliği Turizm Yatırım Ve Ticaret Anonim Şirketi [2023] EWHC 892 (Comm) the Commercial Court has rejected an application made by Radisson Hotels APS (Radisson) to set aside, on the grounds of serious irregularity, a partial arbitral award relating to a hotel mismanagement claim brought by Hayat Otel Işletmeciliği Turizm Yatırım Ve Ticaret Anonim Şirketi (Hayat).

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Attempted re-litigation of issues submitted to arbitration: English Court takes a robust approach

In Swallowfalls Limited v (1) Monaco Yachting & Technologies S.A.M. and (2) Mr Peter Landers JR, the English Commercial Court (the Court) rejected an attempt to resist summary judgment by the defendants (Monaco and L), on the basis of counterclaims for set-off in respect of alleged breaches of a construction agreement. Monaco and L had submitted the counterclaims to arbitration and the tribunal had dismissed those claims following failure by Monaco to comply with orders (including peremptory orders) for security for costs. The tribunal had not reached a decision on the merits of those claims.

In an unusually strongly worded judgment, the Court held that for Monaco and L to litigate the counterclaims that had already been the subject of an arbitration would be an abuse of process and that any other conclusion on the facts would be “offensive to justice” and “would not serve the public interest“.

This is a sensible decision: any other conclusion would have offered the defendants a second chance to prosecute claims against Swallowfalls in the court, in circumstances in which they had agreed to arbitrate them, insisted that they should be arbitrated, and agreed to be bound by the outcome of that arbitration. Whilst the tribunal had not reached a decision on the merits of the claims, the arbitration had reached a final outcome which was the dismissal of the claims given Monaco’s failure to provide security for costs.

The case demonstrates that a party must comply with orders for security for costs or risk being unable to prosecute its claims. The defendants were given a number of chances to provide security and offered a number of methods by which it could be provided. The scant reasons provided for failing to comply with the tribunal’s orders did not impress the Court. Whilst the tribunal’s course of action may seem draconian, the Court noted that proceedings in the Commercial Court would ultimately be dismissed after enduring non-compliance in the same way.

The case also shows that a party is not able to “hop” between forums, as convenience or circumstance dictate. The defendants had argued before the Court that the claims should be arbitrated, and having repeatedly failed to comply with the tribunal’s orders, the defendants were not at liberty to raise those claims as counterclaims in the litigation.  

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Singapore Court of Appeal decision on the enforceability of “Interim Awards”

In the case of PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia), the Singapore Court of Appeal (the Court) considered the issue of enforceability of interim awards. The background to the case is more fully explained in our blog post, but in short the Contractor (CRW) had referred a number of contractual variation claims against the Employer (PGN) to a dispute adjudication board (DAB), and sought to enforce the DAB’s decision to promptly pay the adjudicated sum by way of an arbitration. The majority of the arbitral tribunal issued an interim award which CRW sought to enforce in Singapore in the manner of a judgment.

The majority of the Court found that an interim award which disposed of a preliminary issue was enforceable, in contrast to a provisional award, which was issued only to protect a party from damage during the course of an arbitration (which award was not capable of being enforced). The Interim Award made a final decision on PGN’s obligation to pay promptly to CRW the sums indicated in the DAB’s decision.

The Court’s decision is helpful in looking beyond terminology to the characterization of the types of tribunal decision which are enforceable and those which, despite being couched in the nomenclature associated with enforceability, are not enforceable. There is also considerable guidance given on the interpretation of the dispute resolution provisions in the FIDIC form of contracts which is discussed in more detail in our Construction Ebulletin.

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Finality of partial awards: English court finds that applicant loses the right to object to jurisdiction by failing to challenge a partial award

In Emirates Trading Agency LLC v Sociedade de Fomento Industrial Private Limited [2015] EWHC 1452 (Comm), the English High Court (the Court) dismissed an application under section 67 of the English Arbitration Act 1996 (the Act) to set aside an ICC award on grounds of lack of substantive jurisdiction.

The tribunal had made a partial award on jurisdiction (the Jurisdiction Award), which the applicant in the present case (the Buyer) had not challenged under the Act at the time. The tribunal was then reconstituted as the majority of arbitrators had to be replaced. The Buyer sought to challenge the award on the merits (the Final Award) issued by the reconstituted tribunal, on the ground (inter alia) that it lacked substantive jurisdiction. The Court found that as the Jurisdiction Award had not been challenged within the relevant time, it had become final and created an issue estoppel between the parties. In accordance with section 73(2) of the Act, this barred the Buyer from raising an objection to jurisdiction later.

This case reminds parties that all awards which are final as to the issues they determine – including partial awards issued under s47 of the Act – must be challenged in a timely manner under ss67 to 69 of the Act to avoid losing the ability to challenge the award.

It also demonstrates that additional time and costs can be incurred when parties do not draft their dispute resolution provisions in a clear and unambiguous manner, leaving scope for jurisdictional challenge. Further information about best practice for drafting escalation clauses can be found in our podcast here.

Interestingly, the Court also left open the possibility that difficulties in relation to the future enforcement of an award (in this case, said to arise because the tribunal was reconstituted before the Final Award was issued) could found a challenge under s68, although there was no decision on this point.

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Lorand Shipping v Davof Trading (Africa) B.V. (MV “Ocean Glory”): when a “creative solution” on the part of the tribunal becomes a serious irregularity leading to substantial injustice

In a rare example of a successful application under section 68 of the English Arbitration Act 1996 (the “Act”), the English Commercial Court has granted an order setting aside part of a final award and remitted the matter to the tribunal.

The circumstances which led to the application concerned a dispute under a charterparty between the Owners (Lorand Shipping) and the Charterers (Davof Trading (Africa) B.V.). The Owners referred a claim for demurrage to arbitration and, in a rather unclear Claim Submission, asked the tribunal to reserve its jurisdiction in relation to other claims which were as yet unparticularised and unquantified. The Charterers asked the tribunal to dismiss all such claims on their merits. The tribunal issued a final award which did neither. Instead, the tribunal refused to reserve its jurisdiction and, without regard to a contractual time bar, envisaged that any other claims would be brought in a new arbitration.

The English Commercial Court found that the tribunal’s approach, which had been without proper notice and without having given the parties opportunity to address the course of action which neither of them had advocated, constituted a serious irregularity. The fact that the Owner’s claims were now shut out constituted a substantial injustice and the offending paragraphs of the award were remitted back to the tribunal.

The case serves as a reminder to arbitrators that parties must be given opportunity to consider and address a course of action not advocated by either of them, even if the course of action may objectively be considered a practical solution to their collective benefit.

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