English Commercial High Court (QB): Court’s intervention in challenge against the award on the ground of serious irregularity and substantial injustice

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In Grindrod Shipping Pte Ltd. v Hyundai Merchant Marine Co. Ltd., [2018] EWHC 1284 (Comm), an application was made under Section 68 of the English Arbitration Act (the Act) to challenge the Award of a London Maritime Arbitration Association (LMAA) tribunal. In that award, the tribunal exercised its power under Section 41(3) of the Act to dismiss the claims brought in the arbitration on the basis of inordinate and inexcusable delay.  The claimant’s case was that the tribunal did so on grounds not advanced by the defendant in making the application, and consequently which the claimant says it did not have a fair opportunity to answer.  The claimant argued that had it had such opportunity, there are points it would have made which might well have caused the tribunal to reach a different conclusion. The Court cited the leading authorities and the legal principles on Court’s intervention under section 68(2)(a) and dismissed the challenge against the award. A brief analysis is given below

Applicable Legal Principles

Section 41(3) of the Act

“If the tribunal is satisfied that there has been inordinate and inexcusable delay on the part of the claimant in pursuing his claim and that the delay—

(a) gives rise, or is likely to give rise, to a substantial risk that it is not possible to have a fair resolution of the issues in that claim, or

(b) has caused, or is likely to cause, serious prejudice to the respondent, the tribunal may make an award dismissing the claim.”

Award

The tribunal found established that the identified periods of delay by the claimant had been inordinate and inexcusable, and the claimant was responsible for the delay.

Challenge against the Award

Following the award, the claimant issued challenges under both Section 68 (serious irregularity) and Section 69 (appeal on point of law) of the Act.

The Court refused the permission to appeal under Section 69 saying that “the power under Section 41(3)(b) is one which bestows a wide discretion on the arbitrators.  The challenge is to their conclusion on whether to exercise their discretion in the light of their factual findings.  There is no legal test identified in the exercise of which they are said to have erred; the authorities as to non-trial prejudice are applications of the discretion to the facts.  It is not suggested that any of the factors they rely on are in law incapable of giving rise to serious prejudice.  Even if there were a rule of law (which does not seem to be established by the authorities) that non-trial prejudice will only exceptionally amount to serious prejudice that is not a rule of law such as error in law can be inferred in the way indicated in for example The Dolphin. The Tribunal’s solution would fall within the range of permissible solutions open to the sole finders and assessors of fact under the parties’ chosen dispute resolution mechanism”.

Parties’ Contentions

Claimant argued that the award was affected by a serious irregularity: the tribunal failed to comply with its core duties under Section 33(1) of the Act to act fairly, to give each party a reasonable opportunity of putting its case, and to provide a fair means for the resolution of the matters falling to be determined. Specifically, the tribunal acted unfairly in finding that claimant’s delay in pursuing the arbitration had caused “serious prejudice” to respondent and so satisfied one of the threshold requirements of the power to dismiss under Section 41(3).

The respondent contended that the key issue is whether, for the purposes of Section 68, it is enough for claimant to show that submissions raised and responded to under one heading were addressed by the tribunal under a different heading. In short, the application raises a complaint of form, not substance. The complaint falls outside the scope of Section 68 both because it discloses no breach of duty on the part of the tribunal, and because claimant is unable to establish any substantial injustice.

Analysis

The Court remarked that under Section 68(2)(a) of the Act 1996, a failure by the tribunal to comply with Section 33 (the “general duty of the tribunal”) may constitute a serious irregularity. Section 33(1) imposes obligations on the tribunal to “act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent”, and to “adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined”. An important element of these duties is that the parties have the right to be given a reasonable opportunity to deal with any issue that will be relied on by the tribunal when writing its award.

The Court observed that Section 41 of the Act contains powers of the tribunal in case of a party’s default which apply unless otherwise agreed. Before exercising the power, therefore, the tribunal must be satisfied that there has been inordinate and inexcusable delay by the claimant, and further that this has given rise to “a substantial risk that it is not possible to have a fair resolution of the issues” (Section 41(3)(a)) or that it has caused the respondent “serious prejudice” (Section 41(3)(b)).  Subsections (a) and (b) are alternatives, though of course they may overlap. Once satisfied as to the statutory criteria, the tribunal’s power to make an award dismissing the claim is discretionary, and that it may decide to impose some lesser order within its powers, for example as to costs or timetable or interest.

Leading authorities and the legal principles on Court’s intervention under section 68(2)(a)

An analysis of the leading authorities and the legal principles to be derived from them is to be found in the recent judgments of Popplewell J in Terna Bahrain Holding Co. WLL v. Bin Kamel Al Shamzi [2013] 1 Lloyd’s Rep 86, at [85] and Reliance Industries Ltd and another v. The Union of India [2018] EWHC 822 (Comm), at [12]–[15]):

  1. In order to make out a case for the Court’s intervention under section 68(2)(a), the applicant must show:
    • a breach of s. 33 of the Act; i.e. that the tribunal has failed to act fairly and impartially between the parties, giving each a reasonable opportunity of putting his case and dealing with that of his opponent, adopting procedures so as to provide a fair means for the resolution of the matters falling to be determined;
    • amounting to a serious irregularity;
    • giving rise to substantial injustice.
  1. The test of a serious irregularity giving rise to substantial injustice involves a high threshold. The threshold is deliberately high because a major purpose of the 1996 Act was to reduce drastically the extent of intervention by the courts in the arbitral process.

  1. A balance has to be drawn between the need for finality of the award and the need to protect parties against the unfair conduct of the arbitration. In striking this balance, only an extreme case will justify the Court’s intervention. Relief under section 68 will only be appropriate where the tribunal has gone so wrong in its conduct of the arbitration, and where its conduct is so far removed from what could be reasonably be expected from the arbitral process, that justice calls out for it to be corrected.

  1. There will generally be a breach of section 33 where a tribunal decides the case on the basis of a point which one party has not had a fair opportunity to deal with. If the tribunal thinks that the parties have missed the real point, which has not been raised as an issue, it must warn the parties and give them an opportunity to address the point.

  1. There is, however, an important distinction between, on the one hand, a party having no opportunity to address a point, or his opponent’s case, and, on the other hand, a party failing to recognise or take the opportunity which exists. The latter will not involve a breach of section 33 or a serious irregularity.

  1. The requirement of substantial injustice is additional to that of a serious irregularity, and the applicant must establish both.

  1. In determining whether there has been substantial injustice, the court is not required to decide for itself what would have happened in the arbitration had there been no irregularity. The applicant does not need to show that the result would necessarily or even probably have been different. What the applicant is required to show is that had he had an opportunity to address the point, the tribunal might well have reached a different view and produced a significantly different outcome.”

It follows from these authorities that a party will usually have had a sufficient opportunity to meet the case if the “essential building blocks” of the tribunal’s analysis and reasoning were “in play” or “in the arena” in relation to an issue, even where the argument was not articulated in the way adopted by the tribunal.

Conclusions

While rejecting the application, the court held as under:

  • That the parties had a fair opportunity to address arguments “on all the essential building blocks in the tribunal’s conclusion” and the tribunal does not behaved unfairly manner.
  • That there was no injustice.

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