English High Court dismisses section 68 challenge to arbitral award on basis of delay

In its recent judgment in B.V. Scheepswerf Damen Gorinchem v The Marine Institute [2015] EWHC 1810 (Comm) (available here), the English High Court (the Court) dismissed the claimant's challenge to an arbitral award under s68 of the Arbitration Act 1996 (the Act) on the basis of delay in issuing the award. The award related to a dispute between B.V. Scheepswerf Damen Gorinchem (Damen) and The Marine Institute (TMI) about a vessel that Damen agreed to build and TMI agreed to purchase. TMI alleged that Damen's errors in commissioning the engines had caused damage to the vessel which necessitated repairs.

The dispute was submitted to arbitration in London before a sole arbitrator under the LMAA Terms. The hearing lasted for 3 days in September 2013, but the award (which was in TMI's favour) was not issued until September 2014. The arbitrator provided no "proper" justification for this lengthy delay.

Damen brought an application to set aside the award under section 68 of the Act, which allows the court to set aside awards on the basis of a serious irregularity affecting the tribunal, the proceedings or the award. The grounds of the application were that:

• the lengthy delay in issuing the award amounted to a breach of the arbitrator's general duties and the procedure agreed between the parties (the LMAA terms); and
• the arbitrator had failed to deal with all the issues put before him.

The Court rejected the challenge that the lengthy delay, of itself, was not a sufficient ground to justify the setting aside of an award. The most that could be said was that the delay might lead the court to subject the award to greater scrutiny when considering whether it addressed all the issues put to the tribunal. In this case, however, the arbitrator had addressed all the issues.

The judgment is significant for a number of reasons. It shows that a lengthy delay, without more, will not generally support a challenge under s 68 of the Act. However, notwithstanding the outcome in this case, it also demonstrates that a substantial delay in issuing an award could nonetheless lead to additional scrutiny by the court. Further, the Court confirmed that it will not permit challenges to an arbitrator's factual or legal findings to be "dressed up" as challenges under s68.

Background

In 2000, Damen and TMI entered an agreement under which Damen agreed to build, and TMI agreed to purchase, a vessel. A dispute arose between the parties as to the cause of certain damage to the vessel.

The dispute was heard before a sole arbitrator under the London Maritime Arbitrators' Association (LMAA) Terms in September 2013. The hearing lasted for 3 days. Between February and September 2014, the arbitrator sent numerous emails to the parties indicating that he expected to finalise and issue the award shortly. No reason was given for the continuing delays, other than holidays and the pressure of other work. Neither side complained about these delays or chased the issue of the award.

The award was finally issued in late September 2014, more than 12 months after the last hearing day. The arbitrator upheld TMI's claim, rejecting Damen's alternative explanations for the damage to the vessel.

Challenge under s68

Damen brought an application to challenge the award under s68 of the Act, which allows for a challenge to the award "on the ground of serious irregularity affecting the tribunal, the proceedings or the award" which "the court considers has caused or will cause substantial injustice to the applicant". Irregularities recognised in s68 include: failure by the tribunal to comply with s33 of the Act (general duty of tribunal); failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties; and, failure by the tribunal to deal with all the issues that were put to it.

Damen argued that the delay amounted to a failure to comply with the arbitrator's general duties in s33 of the Act (which require the arbitrator to avoid unnecessary delay) and a failure to comply with section 20 of the LMAA Terms (which provide that the award should normally be available within 6 weeks of the close of the proceedings).

It also argued that the arbitrator failed to deal with all of the issues put to him. This argument was based on Damen's contention that the arbitrator had failed to deal with one of Damen's explanations for the damage (the "common cause" explanation) and had failed to deal with the late disclosure of some technical evidence by TMI.

Dismissal of application

The Court dismissed the application. In reaching this result, the Court held:

• the delay did not breach the procedure agreed by the parties, but was capable of amounting to a serious irregularity in that it breached the arbitrator's duties under section 33 of the Act;
• Damen did not lose its right to object to the delay merely because it had failed to complain before the award was published;
• whilst the delay could amount to a serious irregularity, without more, it was not enough to lead to the award being set aside because Damen needed to show that the delay had caused or will cause substantial injustice to it. Damen could only satisfy this requirement if it could show that the arbitrator had not dealt with all of the issues;
• in assessing whether the arbitrator dealt with all of the issues, the court might examine the award more closely when there has been a lengthy delay. However, the delay does not allow the court to review the arbitrator's findings of fact; and
• the arbitrator dealt with the issues raised by Damen. Damen's real complaint was that the arbitrator had not decided those issues in the way that it wanted.

Each of these aspects of the Court's decision is discussed below in turn.

Delay as a serious irregularity

The Court noted that the delay was lengthy, and no proper reason for the delay had been provided. Such a delay was capable of amounting to a breach of the arbitrator's general duty under s33 of the Act to avoid unnecessary delay, and hence could amount to a "serious irregularity" within the meaning of s68.

The Court did not consider that the delay amounted to a breach of the procedure agreed by the parties. Clause 20 of the LMAA Terms provides that the award should "normally be available within not more than six weeks from the close of the proceedings". It was a distortion of language to describe such a provision as a procedure agreed between the parties. In any event, the Court found that the time limit was not an "immutable rule" as to when an award must be published.

Loss of right to object

The Court rejected the argument that Damen had lost its right to object to the delay by failing to make an application to the court to remove the arbitrator or complain to the arbitrator about the delay. The Court recognised that it is a delicate matter to complain to an arbitrator about a delay in publishing an award for fear of causing offence.

Necessity of showing substantial injustice

Having found that the delay was capable of amounting to a serious irregularity, the Court considered whether it had caused or will cause "substantial injustice" to Damen; serious irregularity, on its own, would not cause the award to be set aside.

The Court found that Damen needed to show that the arbitrator might have reached a conclusion more favourable to Damen but for the irregularity and considered that the only way this could be shown was to demonstrate that the arbitrator had failed to deal with all of the issues. If the award dealt with all of the issues, it would make no difference whether the award was published one month or 12 months after the hearing.

Closer scrutiny of award where lengthy delay

Damen argued that where there is a lengthy delay in publishing an award, the court should treat the award with greater scrutiny on the basis that the arbitrator's recollection of the evidence may have deteriorated. The submission was based on an analogy with appellate court decisions in cases where there has been a lengthy delay between the trial and the judgment being issued.

The Court accepted that it might be possible, where there has been a lengthy delay, to subject an award to greater scrutiny when deciding whether there has been a failure to deal with all of the issues.

However, the Court noted a key difference between appellate review of trial decisions and a challenge under s68: an appellate court could review the trial judge's factual findings, but a review of the arbitrator's factual findings was not permissible in s68 challenges. It followed that where the court subjected an award to greater scrutiny on the basis of delay, it was limited to an analysis of whether the issues had been dealt with. Delay does not provide a gateway for challenging the arbitrator's findings of fact.

Failure to deal with all issues

The Court noted that the question on a s68 challenge is whether the arbitrator has dealt with all the issues; whether the issue was dealt with well or poorly is beside the point.

In this case, it was clear that the arbitrator had dealt with all the issues. The Court considered that Damen's challenge under s68 was really an attempt to challenge the factual findings made by the arbitrator; it was a "classic example" of a disappointed party arguing that it has been treated unfairly because some piece of evidence has not been accepted and fully dealt with. This is precisely the situation where the court should not intervene under s68.

Comment

This decision provides some useful guidance on applications under s68 of the Act. First, it shows that delay may amount to a serious irregularity under s68. For the challenge to succeed, as in all s68 challenges, the applicant will still need to demonstrate substantial injustice. Second, it confirms that delay will not provide a gateway for the court to review the merits of the award; the court's review of the award is not analogous to an appellate court's review of the trial judge's findings of fact. Third, a complaint that the award has not dealt with all the issues will only succeed where the arbitrator really has failed to address a material issue in the proceeding. It will not succeed where the award deals with the issue, albeit in a dismissive or unsatisfactory manner.

An interesting aspect of the decision is that the Court considered that the only way that substantial injustice could be shown in this case was to demonstrate that the award did not deal with all the issues. There may be cases, however, where delay might cause substantial injustice even though all the issues have been dealt with. An example is where there are conflicts of evidence which can only be resolved through an assessment of the credibility of the witnesses' testimony. If there is a lengthy delay in issuing the award, a disappointed party might complain that had the arbitrator written the award sooner, the arbitrator would have come to different conclusions on credibility based on a fresher recollection of the evidence and the witnesses' respective demeanours. Whether such an application would succeed in light of this decision remains to be seen. The hurdle would remain high, as the submission could be characterised as an impermissible attempt to challenge findings of fact.

For further information, please contact Craig Tevendale, Partner, Aaron McDonald, Associate, or your usual Herbert Smith Freehills contact.