The English High Court’s decision in State A v Party B  EWHC 799 (Comm), handed down in January 2019 but only recently published, concerned the court’s dismissal of an application to extend the time for bringing a jurisdictional challenge under section 67 of the Arbitration Act 1996 in circumstances where the challenge was 959 days late (available here).
The decision found that where the delay is lengthy and the application for an extension is based on fresh evidence, an extension will only be justified by fresh evidence that is “transformational” or “seismic“. The decision illustrates the importance that the English court places on the timeliness of challenges to awards and the high threshold that must be met in order to obtain an extension.
The decision of the court is anonymised and heavily redacted, making it difficult to glean a full picture of the factual background.
The underlying arbitration concerned a claim by Party B against State A under a bilateral investment treaty (“BIT“). In the jurisdiction phase of the arbitration, State A put in issue the position of State D (a non-party) on a material point (“State D Point“), which point is not disclosed in the court’s decision. With the tribunal’s permission, State D filed submissions and produced specially declassified documents on the State D Point which supported Party B’s case. State D claimed in its submissions that, in addressing the State D Point, it had carried out a thorough review of its records. State A argued that State D’s submissions should not be accepted and that there was no way of knowing whether State D had produced all of the relevant documents.
In 2015 the tribunal issued its Partial Final Award on jurisdiction (“PFA“) finding in favour of Party B. The tribunal found that the documents provided by State D (most of which were internal documents) provided “useful context” and that State D’s submission had made a “useful contribution” to the proceeding. In reaching its conclusion on the State D Point, the tribunal also had regard to other factors, listed as “Possible Contrary Indications“, which were contrary to State D’s submission.
The PFA was not challenged by State A within 28 days (as required under section 70(3) of the Arbitration Act 1996) and the arbitration proceeded to the liability and quantum phase. The parties filed numerous pleadings, witness statements and expert reports, and a 12 day hearing was held in 2017 and 2018. Each party incurred millions of dollars in legal costs during the phase. The final award is pending.
In the meantime, another claimant (Party E) brought an arbitral claim against State A under the same BIT. In the course of that arbitration, Party E produced a document which had been created by State D and which was relevant to the State D Point (the “Mr F Letter“). State D had not produced this document when addressing the State D Point in the arbitration between State A and Party B. After receiving the Mr F Letter, State A speedily brought the application the subject of the present case.
Application for extension of time
State A brought an application before the English High Court under section 80(5) of the Arbitration Act 1996 (“Act“) seeking an extension of the 28 day period to challenge the PFA under section 67 of the Act for lack of jurisdiction. By this time, the application was 959 days late. State A sought to justify the delay on the basis that the Mr F Letter was a “game-changer” and it now had an arguable challenge to the PFA. The application for an extension of time was opposed by Party B.
The application came before Sir Michael Burton QC, sitting as a judge of the High Court.
Decision of the court – legal principles
The court considered in detail the principles that ought to be applied when deciding whether to grant an extension under section 80(5) of the Act.
It outlined the seven factors (“Colman Guidelines“) which are relevant to the exercise of the court’s discretion and which were developed by Colman J in Kalmneft v Glencore International AG  1 All ER 76 and approved by the Court of Appeal in Nagusina Naviera v Allied Maritime Inc  2 CLC 1. They are:
- the length of the delay;
- the reasonableness of the applicant’s conduct in allowing the delay to arise;
- any contribution to the delay by the respondent or the tribunal;
- any irredeemable prejudice that would be suffered by the respondent (in addition to the delay) if the extension were granted;
- the impact of determining the challenge on any ongoing arbitral proceedings between the parties;
- the strength of the challenge;
- the overall fairness of denying the applicant the opportunity to have the challenge determined.
The court also noted the following points which arise from the authorities:
- The relatively short period of time for making an application under sections 67, 68 and 69 of the Act reflects the principle of finality. Once an award is made, the parties must live with it or move with great expedition.
- The length of delay must be measured against the yardstick of the 28 days provided for in the Act. A delay measured even in days is significant; a delay measured in weeks or months is substantial.
- A survey of the authorities before the court showed that in almost all cases an extension was refused, and all of those authorities involved considerably shorter delays than the present case. This highlights the very exceptional nature of an application for an extension.
There were several disputes between the parties as to how these principles operate in the context of an application for an extension based on fresh evidence. State A’s position was that the strength of the challenge (factor (vi)) was not a “primary factor” under the Colman Guidelines and there is no special test beyond the Colman Guidelines when fresh evidence is involved. Party B argued that the strength of the challenge was indeed a primary factor when applying the Colman Guidelines, and that in cases involving fresh evidence a further factor arises: the evidence must wholly change the case from that which was previously addressed.
The court decided these points of principle as follows:
- The strength of the challenge (factor (vi)) must be one of the primary factors where there has been a substantial delay.
- There is no special factor when fresh evidence is involved. There may be cases where the delay is minor, and the Colman Guidelines weigh in favour of an extension notwithstanding that the evidence does not wholly change the case.
- However, there should be leeway in the Colman Guidelines for relativity. The longer the delay, the more “transformational” or “seismic” the fresh evidence must be in order to justify the grant of an extension.
Decision of the court – application of principles to the facts
The court, applying the Colman Guidelines, relevantly found as follows:
- The length of delay – 959 days – was “colossal“.
- State A had not failed to take reasonable steps to discover the Mr F Letter and had therefore acted reasonably in the circumstances.
- Neither Party B nor the tribunal had contributed to the delay.
- Party B would suffer prejudice in the form of further delay and potential wasted costs in the arbitration if the extension were granted. However, such prejudice must be seen in the context of the harm that State A would suffer if it lost the opportunity to challenge the PFA, particularly where it may face further claims under the BIT (notwithstanding that the PFA’s finding on jurisdiction would not be strictly binding on other tribunals).
- Subject to wasted costs, it would be possible to re-open the question of jurisdiction in the ongoing arbitration.
Crucially, the court considered that State A’s case was not sufficiently strong to justify an extension in circumstances where the delay was colossal and the wasted costs would be large. Only fresh evidence which was truly transformational could justify re-opening the PFA after all this time; in the present case, the Mr F Letter did not meet that threshold. The court considered that State D was misguided in not producing the Mr F Letter in its submission. However, had State D done so, the conclusion reached by the tribunal in the PFA would have been the same. The Mr F Letter would have been added to the list of “Possible Contrary Indications” and the tribunal’s analysis would have held.
Accordingly, State A’s application for an extension was dismissed.
The decision of the court is perhaps unsurprising given the “colossal” delay of 959 days and the absence of “game-changing” fresh evidence. However, several features of the case are noteworthy.
First, the decision (and its survey of relevant case law) reinforces the importance placed by the English court on the timeliness of challenges under the Act and the finality of arbitral awards. The fact that State A had acted reasonably in the circumstances and would suffer harm if the extension was not granted was not enough to overcome these policy priorities.
Second, the court held that the strength of the challenge will be an important factor in assessing applications for an extension, at least in situations involving a substantial delay. Given the English court’s concern about unmeritorious challenges to awards under section 68 of the Act (see here and here ), the strength (or weakness) of the challenge may play an increasingly important role when the extension relates to a challenge under section 68.
Third, there was no suggestion that Party B or the tribunal contributed to the delay (factor (iii) in the Colman Guidelines). Had Party B (as opposed to State D) failed to produce the Mr F Letter, the analysis may have been different. The issue of how “transformational” the fresh evidence must be in circumstances where the respondent has caused or contributed to the delay thus remains an open question.
For further information, please contact Andrew Cannon, Partner, Aaron McDonald, Senior Associate, or your usual Herbert Smith Freehills contact.