High Court rejects challenge to an arbitral award for serious irregularity

In the case of Primera Maritime (Hellas) Limited and Others vs Jiangsu Eastern Heavy Industry Co Ltd and others, published on 15 October 2013, the London High Court issued a ruling rejecting a challenge against the decision of an arbitral tribunal. The arbitral award had been challenged under section 68(2)(d) of the Arbitration Act (the Act) before the High Court with the claimants alleging that the tribunal had failed to deal with all the issues put to it and that this failure amounted to serious irregularity. Rejecting the claim, the High Court provided guidance as to the components of a successful challenge to an arbitral award under section 68 of the Act, and noted that, as is well accepted, section 68 is "only to cover extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected."

Background

The claimants had alleged that the defendants were in anticipatory breach of certain shipbuilding contracts because they had refused to perform the contracts in accordance with their terms. Consequently, the defendants had renounced the contracts. The arbitral tribunal found that the claimants had subsequently affirmed the contracts and that as a result the defendants were not liable for breach.

The claimants applied under section 68(2)(d) of the Act alleging that the tribunal had failed to consider the issues put before them by the claimants, namely: (i) that the renunciation by the defendants was continuous; and (ii) in relation to the quantum of the claimants' claim, that the claimants could have "flipped" the contracts (sold them on at a profit to third parties).

Serious Irregularity under the Arbitration Act

In rejecting the challenge to the arbitral award, the High Court provided some useful guidance as to the serious irregularity challenge under section 68 of the Act.

Mounting a successful challenge under section 68 requires an applicant to demonstrate that there has been a serious irregularity affecting the tribunal, the proceedings or the award. A serious irregularity means an irregularity which falls within one of the closed list of categories in section 68(2) which has caused or will cause the applicant substantial injustice.

The judge pointed out that section 68 was "only to cover extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected." The point of section 68 is not to examine whether the tribunal has "got it right" but whether there has been due process.

A challenge on the basis that the tribunal failed to "deal with all the issues that were put to it" may be pursued pursuant to section 68(2) at sub-section 68(2)(d). The judge held that there were four questions for the court to consider in relation to section 68(2)(d):

1. whether the relevant point or argument was an "issue" within the meaning of the sub-section;
2. if so, whether the issue was "put" to the tribunal;
3. if so, whether the tribunal failed to deal with it; and
4. if so, whether that failure has caused or will cause substantial injustice.

Judgment

Firstly, the judge doubted whether "continuing renunciation" and "repeated renunciation" had been submitted to the tribunal as separate issues. Even if "continuing renunciation" were a separate and narrower "issue", this had clearly been dealt with by the tribunal. The conclusions reached by the tribunal were conclusions of fact that could not be reviewed by the court under section 68 or otherwise and the judge held that it was "wrong in principle to look at the quality of the reasoning if the judge has dealt with the issue".

In relation to the second issue, that the claimants could have "flipped" the contracts, the judge found that this issue had been dealt with appropriately. The point was moot, given that the tribunal had found that the claimants had repudiated the contract in the first place. The judge found that even if there had been any point in dealing with the issue, the claimant would not have been able to demonstrate that the failure to deal with the issue had caused substantial injustice.

The judge dismissed the application on the basis that it was, in substance, an impermissible an attempt to challenge the findings of fact of the tribunal.

Conclusion

This is a further example of an increasing number of failed challenges to awards under section 68 of the Act. This trend has prompted changes to the Commercial Court Guide earlier this year to expressly recognise the sanction of indemnity cost consequences against a party bringing an unmeritorious challenge (see our post).