Section 67 and 68 challenges to LCIA award dismissed

In the highly complex and contentious case of Filatona Trading Ltd and another v Navigator Equities Ltd and others [2019] EWHC 173 (Comm), the English High Court dismissed an attempted challenge to an LCIA award brought on the grounds of jurisdiction (s.67 Arbitration Act 1996) and serious irregularity (s.68 Arbitration Act 1996).

In particular, the Court held that an LCIA arbitral tribunal did not exceed the scope of its powers in ordering relief that was not available to an English court.

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English Court of Appeal refuses permission to appeal dismissed s67 claim

In a further development in the case of Union Marine Classification Services LLC v The Government of the Union of Comoros covered on our blog here, the Court of Appeal ("Court") has refused to grant permission to appeal. The claim was originally made under s67 of the English Arbitration Act 1996 (which relates to lack of jurisdiction) in respect of an additional award made under s57(3) of the Act (which allows a tribunal to make an additional award in respect of a claim which was presented to the tribunal but not dealt with in an earlier award). The claim was dismissed on the basis that it should have been brought under s68 of the Act (relating to serious irregularity), rather than s67. The judge had also refused to extend the time limit to allow the claimant to make an application under s68, noting that the claim would have failed on the merits in any event and refused permission to appeal. The applicant sought permission to appeal from the Court on the basis that the judge was wrong in both his conclusion that the claim fell outside s67 and his refusal to allow an extension of time.

The Court focussed its analysis on the practical point on whether an appeal would have had any real prospect of success, finding in no uncertain terms, that it would not and that granting permission to appeal "would simply cause the parties to incur further costs to no good purpose".

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Separability and public policy: selecting law of arbitration agreement does not disapply conflicting non-mandatory provisions of English Arbitration Act 1996 and “fresh evidence…is particularly important” for challenging an Award on public policy grounds

An arbitration agreement is understood in most, but not all, jurisdictions to be a separable or distinct agreement from the contract or agreement of which it forms part.  This is confirmed in s7 of the English Arbitration Act 1996 (the Act).

In National Iranian Oil Company (NIOC) v Crescent Petroleum Company International Ltd (CP) & Crescent Gas Corporation Ltd (CG), the English Court rejected NIOC's challenge to an award issued in a London seated arbitration on grounds of jurisdiction and public policy.

NIOC argued that the contract – which was governed by Iranian law – was procured by corruption and therefore invalid.  It also argued that this meant that the arbitration agreement was also invalid (such that the tribunal had no jurisdiction) because: (i) Iranian law applied to the question of whether the arbitration agreement was separable; and (ii) Iranian law did not recognise the separability of the arbitration.

The Court rejected this argument. As the arbitration was seated in London, s7 of the Act applied unless it was disapplied by the parties by "agreement to the contrary". While s7 is not a mandatory provision, the Court commented that an "agreement to the contrary" in relation to the specific provision is required to disapply it. The choice of Iranian law as the proper law of the contract was not an agreement to the contrary in relation to separability. Furthermore, the parties' arbitration agreement made clear that the issue of validity of the contract was to be determined by the tribunal.  The challenge to the award under s67 was rejected.

The Court also struck out NIOC's challenge based on public policy (which it brought under s68(2)(g) of the Act). NIOC argued that, whilst the tribunal found that the contract was not procured by corruption, the Court, considering English public policy, might take a different view. NIOC was found to have no reasonable prospect of succeeding in its challenge because: (i) the arbitrators had made "a very careful analysis" of the issue in question "after full consideration and evidence"; (ii) NIOC had provided no "fresh evidence"; and (iii) this was not a case of "very exceptional circumstances" that would justify the Court intervening with the arbitrators' decision.

This is a robust, pro-arbitration decision from the English court. In practical terms, it serves as a useful reminder for parties to analyse at the transactional stage the interplay between the different laws that might apply to their disputes and the impact that any conflicting provisions of those laws might have on the procedure for quickly and effectively resolving those dispute. Where potential issues are identified, they should be addressed in the drafting of the dispute resolution provisions. The case further highlights the need to disapply non-mandatory provisions of the Act in clear and specific terms.

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Court of Appeal clarifies the English Court’s jurisdiction under section 67 of the Arbitration Act: the Court is not required to make any order at all even if the application is well-founded

The recent decision of the English Court of Appeal in Integral Petroleum SA v Melars Group Limited considers the jurisdiction of the court under s67 of the English Arbitration Act 1996 (the Act). S67 deals with challenges to an arbitral award on the grounds of want of substantive jurisdiction. S67(3) provides that on an application by a party to an award, the court may: confirm the award; vary the award; or set aside the award in whole or in part.

The Court of Appeal made clear that the permissive nature of the word "may" in s67(3) makes it open for a judge to decide to make no order, for good reason, on any application under s67.

The Court of Appeal also held that it has no jurisdiction to grant permission to appeal the order of the lower court. Permission to appeal must be granted by the lower court itself.

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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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Commercial Court provides guidance on “serious irregularity” and confirms arbitral tribunal has jurisdiction to determine contractual rights and obligations in light of criminal conduct

In the recent decision of Interprods Ltd v De La Rue International Ltd [2014] EWHC 68 (Comm), the English Commercial Court dismissed the challenges under sections 67 and 68 of the Arbitration Act 1996 (the Act) against an arbitral award. In this case, the arbitrator held that the defendant (De La Rue) had been entitled to terminate agency agreements with the claimant (Interprods) and was not obliged to pay outstanding commission to it in circumstances where a representative of Interprods had allegedly stated that such commission would be used to pay bribes.

Interprods challenged the award under: (i) section 67 of the Act on the basis that the arbitrator had lacked jurisdiction to make the award in question; and (ii) section 68 of the Act on the basis that there had been serious irregularities in the making of the award.

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