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Challenging Arbitration Awards – A Challenge In Itself?

May 25, 2021

It is now generally accepted that one of the advantages of arbitration is the finality of the arbitration award and the limited ways in which it can be challenged. For proceedings with a London seat, the Arbitration Act 1996 (the “Act”) makes clear that the Courts of England and Wales have a supportive role and limited powers of intervention in respect of arbitration proceedings. This is certainly borne out by available statistics and general sentiments expressed by the Judiciary of England and Wales in recent years. Sections 67, 68 and 69 of the Act deal with the grounds upon which an arbitration award can be challenged. According to the 2020 Minutes of the Commercial Court User Group, the number of applications made to challenge arbitration awards has fallen steadily, and significantly, since 2017. This trend is also seen when considering the number of applications which actually succeed. For example, in 2019/2020, 16 applications were made under section 68 of the Act and only one was successful [1] (interestingly, 71 applications were made under this provision in 2017/2018!). In fact, there were only two successful challenges to arbitration awards in the Commercial Court for 2019/2020, the other one being made under section 69 [2] of the Act. Against this background, successful challenges are rare and worthy of note. We therefore look in this article at the Privy Council’s decision in RAV Bahamas Ltd & Bimini Bay Resort Management Limited v Therapy Beach Club Incorporated [2021] UKPC 8 (“Rav Bahamas”).

Legislative background

Before we explore the decision in more detail, it is helpful to set out the available grounds for challenging an award under the Act:

  • Section 67 – a challenge on the basis that the award was made without jurisdiction. This is a mandatory provision, which means that the parties cannot exclude the application of this provision in their arbitration agreement.
  • Section 68 – challenge on the grounds of serious irregularity affecting the Tribunal, the award or the proceedings. This is also a mandatory provision.
  • Section 69 – appeal on a point of law. The court’s permission to appeal is required unless the parties agree to such an appeal being brought. In contrast to the above provisions, the parties can expressly exclude this provision in their arbitration agreement.

Challenges to an arbitration award must be brought within 28 days of the date of award, or if the Tribunal has concluded its own review process, within 28 days of the date when a party is notified of the outcome of such process. A party can apply for a time extension but any action to challenge an award needs to be taken promptly so as not to lose the right to object.

Before objecting to an award, a party must have also first exhausted the available processes (if any) of review and appeal under the relevant arbitral institutional rules. The LCIA, the UNCITRAL and the ICC rules, for example, provide procedures for the correction of clerical, computation or typographic errors and/or ambiguities.

Section 68

The Rav Bahamas decision concerns the operation of section 90 of the Bahamas Arbitration Act 2009 (the “Bahamas Act”), which is substantially identical to section 68 of the Act. For a successful challenge under section 68, a party needs to show: (1) a serious irregularity; and (2) that such irregularity has caused, or will cause, substantial injustice. Section 68(2) lists a series of examples of serious irregularity. These include: (1) the Tribunal failing to deal with all the issues that were put to it; (2) failure of the Tribunal to comply with its duties under section 33; or (3) failure by the Tribunal to conduct proceedings in accordance with the procedure agreed by the parties.

Appeals under section 68 of the Act are last-resort exceptional measures. They are directed towards procedure and are not designed to deal with issues of law and jurisdiction (which sections 69 and 67 of the Act cover respectively). Unsurprisingly, the applicant is required to meet a high threshold in order to successfully challenge an award under section 68 of the Act.

Rav Bahamas background

The Appellant (RAV) had leased to the Respondent (Therapy Beach Club) land to build and operate a beach club and a restaurant for a period of three years with an option to extend the lease for a further three years. Around 15 months into the lease, the Appellant issued proceedings before the Supreme Court of the Bahamas alleging that the lease was “void, illegal and of no effect”. However, before the Supreme Court issued its decision, the Appellant demolished the beach club and evicted the Respondent from the site. It was this aspect of the dispute that was referred to arbitration. The Tribunal found in favour of the Respondent and the Appellant was ordered to pay more than $6 million worth of damages.

The Appellant challenged the award under section 90 of the Bahamas Act which, as mentioned above, is materially similar to section 68 of the Act. The challenge was essentially based on two grounds, namely that: (1) the Arbitrator had failed to deal with all important issues that were put to her regarding the period for which damages should have been awarded; and (2) the Arbitrator had failed to give the Appellant reasonable opportunity to address particular damages calculation adjustments that she had made.

The Appellant appealed to the Supreme Court of the Bahamas where Mr Justice Winder granted the appeal. The Respondent then appealed to the Court of Appeal of the Bahamas. The Court of Appeal upheld the arbitration award on the basis that there was no irregularity on both grounds and that the Appellant’s challenge was really an appeal on a point of law (and so the Appellant’s appeal was brought under the wrong section of the Bahamas Act). The Appellant appealed the Court of Appeal’s decision to the Privy Council.

Privy Council decision

The main question before the Privy Council was whether, in every challenge on the ground of serious irregularity, there needs to be a separate and express: (1) allegation; (2) consideration by the court; and (3) finding of substantial injustice in order for the court to uphold the challenge.

The Appellant was successful and the award remitted to the Tribunal. The Privy Council allowed the appeal on the first ground in its entirety and in part on the second ground. In this case, it was apparent from the transcript of the arbitration hearing that the arbitrator’s analysis of the damages was not discussed at the hearing and was only seen when it appeared in the award. The Appellant therefore had no opportunity to make representations, which was (of course) an irregularity that was seriously prejudicial to the Appellant.  

The Privy Council made clear that, whilst good practice, it was not compulsory that Mr Justice Winder expressly set out each of the elements which added up to his finding of substantial injustice.

Conclusion

The Privy Council’s decision is helpful and reassuring in that it is clear that the courts should be concerned with substance rather than form. Notwithstanding this, parties considering a challenge to an arbitral award on the ground of serious irregularity may wish to encourage the good practice highlighted by the Privy Council, namely, to ensure that any decision expressly and separately sets out the allegation, consideration, and finding of substantial injustice.

*This article is not intended to give any legal advice or to give rise to a client-solicitor relationship. It has been prepared for information purposes only. If you require legal assistance on arbitration and/or litigation matters, please contact iLaw’s Head of Arbitration, Jenny Lau at jenny.lau@ilaw.co.uk

[1] Xstrata Coal Queensland P Ltd v Benxi Iron &Steel (Group) International Economic & Trading Co Ltd [2020]

[2] Alegrow SA vYayla Argo Gida San ve Nak A.S [2020]

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