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

ENGLISH COURT REJECTS S68 CHALLENGE MADE ON THE GROUNDS OF APPARENT BIAS

In Rabbi Moshe Avram Dadoun v Yitzchok Biton [2019] EWHC 3441 (Ch), the High Court dismissed an appeal against an arbitral award (the “Award”) of the Beth Din of the Federation of Synagogues in London (the “Beth Din”) under s68 of the Arbitration Act (the “Act”). While there were unilateral and undisclosed communications between a member of the tribunal and an individual involved in the case, the Court decided that this did not amount to apparent bias. The decision clearly demonstrates the high hurdle for succeeding with a s68 application.

Background

The original dispute centred on the ownership of shares in a company. A Memorandum of Agreement (the “MOA”) had been signed by the Claimant, the Defendant, the Defendant’s brother and another individual, in relation to a “quasi-partnership” between them.

The case was heard by the Beth Din, a Jewish Rabbinical Court which can be used by Orthodox Jews to arbitrate their commercial disputes, on 2 June and 4 August 2008. The Award was not produced for over five years and was finally issued on 4 April 2014, largely finding in favour of the Defendant. The Claimant subsequently brought an application to challenge the Award under s69 of the Act, on the basis that the Award contained an error of law.

In 2017 the Claimant discovered the existence of a letter dated 23 July 2013, which referred to a unilateral meeting that had taken place around 9 months before the Award was issued, between the Defendant’s brother and a member of the tribunal, the head of the Beth Din. This letter, sent by the Defendant to the tribunal member, also referred to another letter sent to the tribunal member by the Defendant’s brother on 18 July 2013. This second letter was never found and there was no evidence of any reply by the Beth Din.

The Claimant amended his application to challenge the Award to include an application under s68 of the Act, on the basis that there was a serious irregularity affecting the Award. The initial application under s69 was then stayed.

Application under s68

The Claimant sought to challenge the Award under s68 of the Act, on the grounds that the discussion was “highly suspicious”, with the unilateral communications leading to apparent bias on the part of the relevant tribunal member. This challenge was possible because awards of the Beth Din are English-seated arbitration awards and therefore subject to the supervisory jurisdiction of the English court.

The Claimant contended that:

  • The discussion between the tribunal member and the Defendant’s brother was due to the Defendant’s brother deliberately attending at the Beth Din’s offices in order to have the opportunity to discuss the case.
  • It would have been “implausible and inconceivable that there would not have been a discussion as to the merits of the case”.
  • The further delay in producing the Award was “suspicious”, particularly as the Award was ultimately largely in the Defendant’s favour.
  • The non-disclosure of both the discussion and the letters in itself amounted to serious irregularity.

Decision of the High Court

The High Court emphasised that the Defendant’s brother had been party to the initial financial arrangements between the parties and had signed the MOA. While he had not given evidence in the arbitration and was not a party, he was nonetheless “clearly a person who featured in the case”.

The Defendant had taken the position that the conversation between the Defendant’s brother and the tribunal member merely involved asking the Beth Din to make a decision in the case. The tribunal member concerned had also given evidence to the Court and confirmed that the conversation had been confined to a query about the timing of the Award.

The Court concluded that the evidence of the Defendant’s brother and the tribunal member as to the limited nature of the conversation was credible. This was because, given the circumstances in which the meeting occurred, at the end of public afternoon prayers at the Federation of Synagogues’ Offices, any conversation would necessarily have been short. The Defendant’s letter of 23 July 2013 confirmed that the discussion was limited to the question of delay and that the tribunal member had promised that the Award would be with the parties within around three weeks. The High Court noted that “the shortness and insignificant nature of the discussion is given more credence by the fact that…[the tribunal member]… did not make a note of the discussion nor inform the Claimant”. There was “no evidence at all to contradict” the accounts of the tribunal member and the Defendant’s brother.

While it was “regrettable” that the letters were not disclosed to the Claimant, there was no evidence that this was deliberate, or done in order to hide the discussion. The further delay in relation to production of the Award was not suspicious in the context of the existing delay.

The Court applied the test for apparent bias as set out in Porter v Magill, which is “whether a fair minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.” It noted that an enquiry by one party to an arbitrator requesting information on the likely timing of an award “cannot possibly be improper or constitute evidence of apparent bias”.

The Court referred to the leading authority on the arbitrator’s duty of disclosure, which is the Court of Appeal’s judgment in Halliburton Company v Chubb Bermuda Insurance Ltd and ors [2018] 1 WLR 3361, discussed in more detail here. The tribunal should disclose facts and circumstances that would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased. However, the Court of Appeal has emphasised that non-disclosure of a fact which does not give rise to justifiable doubts as to the arbitrator’s impartiality cannot, in and of itself, justify an inference of apparent bias, as “something more is required“.

The unilateral conversation in the Dadoun v Biton case did not even meet the test of being something that “should have been disclosed”. The non-disclosure of the Defendant’s letter had resulted only from a “failure of administration at the Beth Din”. Had this letter been disclosed to the Claimant at the time, he would then have learned of the conversation itself and would probably have been “totally unconcerned about that”. The non-disclosure of this letter accordingly did not provide evidence of apparent bias. As the 18 July 2013 letter had never been found, it was not possible for the Court to comment on whether it should have been disclosed. The Claimant’s challenge was accordingly dismissed.

Comment

This case is a further illustration of the robust approach taken by the English courts to s68 challenges. The courts regularly emphasise the difficulty of meeting the serious irregularity test and very few applications are successful.

The threshold for showing apparent bias remains high, with the Court in this case applying the Court of Appeal’s approach to non-disclosure in Halliburton v Chubb. While the Court of Appeal determined in Haliburton v Chubb that non-disclosure of a fact which does not give rise to justifiable doubts as to the arbitrator’s impartiality will not amount to apparent bias without “something more”, this requirement has proved controversial. There has been particular criticism of the lack of comment in the Haliburton v Chubb judgment about what might constitute “something more”. Haliburton v Chubb has been appealed to the Supreme Court, and the Supreme Court’s judgment is likely to provide useful clarification of the English law in this respect.

The decision in Dadoun v Biton highlights the importance of avoiding all unilateral communications with arbitrators once the tribunal has been appointed, to avoid the risk of future challenges to the award. The case is also a reminder to tribunals that the tribunal’s duty under s33 of the Act to act fairly means that any unilateral approaches, however innocuous or objectively insignificant, should be disclosed to all parties to the arbitration.

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

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445
Peter Chen
Peter Chen
Associate
+44 20 7466 3868
Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418

ENGLISH HIGH COURT REFUSES TO AWARD COSTS TO CLAIMANT DESPITE SUCCESSFUL ENFORCEMENT OF ICC ARBITRATION AWARD

The English High Court (the “Court“) has refused to order costs to a claimant who successfully enforced an arbitration award, because the claimant did not satisfy its duty of full and frank disclosure when making a without notice enforcement application to the Court. In Leidos Inc v The Hellenic Republic [2019] EWHC 2738 (Comm), the claimant failed to explain to the Court that the defendant’s challenge of the award in Greece (the seat of the arbitration) might constitute a defence to enforcement in England. Even though the claimant was ultimately successful in enforcing the award, the Court held that this “serious” and “material” omission meant it would be unjust for the defendant to pay the claimant’s costs.

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ENGLISH HIGH COURT FINDS THAT ARBITRATOR ERRED IN LAW IN FINDING EXPRESS “WITHOUT PREJUDICE” CORRESPONDENCE ADMISSIBLE ON COSTS BUT FINDS IMPLIEDLY “WITHOUT PREJUDICE” CORRESPONDENCE ADMISSIBLE

In Sternberg Reed Solicitors v Harrison [2019] EWHC 2065 (Ch), the High Court decided that an arbitrator had made an error in law in deciding that he could consider correspondence marked “without prejudice” when deciding costs.  However, correspondence that is impliedly “without prejudice” could be taken into consideration.  Arbitrators usually have broad discretion when considering costs but the established English law rules on privilege will still limit what evidence of the parties’ discussions is admissible.  The court’s decision on impliedly “without prejudice” correspondence is significant and may impact how parties to an arbitration (or litigation) react to settlement offers.

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THE MALDIVES ACCEDES TO THE NEW YORK CONVENTION

The Maldives recently became the latest state party to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention“).

The Maldives acceded formally to the New York Convention on 17 September 2019, which will come into force for the Maldives on 16 December 2019, 90 days thereafter. The Maldives becomes the 161st state party of the New York Convention in a year that marks the 60th anniversary of its coming into effect on 7 June 1959.

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INDIA INTRODUCES KEY AMENDMENTS TO ARBITRATION AND CONCILIATION ACT 1996

After the Arbitration and Conciliation Bill, 2019 (the “Bill“) was passed by both houses of the Indian Parliament, the President of India on 9 August 2019 gave his assent.  The new Arbitration and Conciliation (Amendment) Act, 2019 (the “2019 Act“) will amend the Indian Arbitration and Conciliation Act, 1996 (the “1996 Act“), implementing the recommendations of the High Level Committee Report issued in 2017 under the chairmanship of Justice BN Srikrishna. The changes proposed in the Bill were previously discussed here.

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English High Court sets aside award for failure to properly cross-examine a witness on a core issue and basing its decision on matters not properly argued by the parties

In P v D [2019] EWHC 1277 (Comm), the English High Court set aside an arbitral award on the basis that the tribunal had reached a finding of fact on a core issue that had not properly been put to a witness in cross-examination and that the tribunal had based its decision on a case not properly argued by the parties. Under s68 of the Arbitration Act 1996 (the “Act”), the court has the power to set aside an award on grounds of serious irregularity. It is rare for the court to exercise this power – although that does not deter aggrieved parties from submitting applications to set aside. The judgment gives important guidance on the court’s approach on this important procedural issue, and addresses considerations of fairness to witnesses in cross-examination, and to the parties putting those witnesses forward.

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English Court rejects section 68 challenge on the primary ground that the Tribunal’s decision was a Procedural Order and not an Award

In the recent case of ZCCM Investments Holdings PLC v Kansanshi Holdings PLC & Anor [2019] EWHC 1285 (Comm), the English Court (the Court) rejected a challenge under s.68 of the English Arbitration Act 1996 (the Act) and provided useful guidance on the test for determining whether a tribunal’s decision qualifies as an award for the purpose of a s.68 challenge.

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ENGLISH HIGH COURT DISMISSES S68 CHALLENGE TO ‘AMBIGUOUS’ AWARD

In Gracie and another v Rose [2019] EWHC 1176 (Ch), the English court dismissed a challenge to an arbitration award under s68 of the Arbitration Act 1996.

While the court found that the Arbitrator’s reasoning in relation to certain topics was ambiguous, it held that this was insufficient for a successful s68 challenge. The judgment contains useful guidance on the scope of s68 and its interplay with other provisions of the 1996 Act. In particular, the court emphasised that the applicant had an obligation to first request the arbitrator to correct, supplement or clarify the award under s57 before bringing a challenge in the courts.

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