English court provides new guidance on summary dismissal process for groundless serious irregularity challenges

The English High Court has in the last few days proposed a procedurally strict approach to serious irregularity challenges under s68 of the Arbitration Act 1996 where these have already been dismissed on paper. The decision in Midnight Marine Ltd v Thomas Miller Speciality Underwriting Agency Ltd [2018] EWHC 3431 (Comm) suggests that the court should take a more active role in preventing such hearings from escalating into a full s68 challenge hearing (case available here).

The High Court's earlier decision in the case of Asset Management Corporation of Nigeria v Qatar National Bank [2018] EWHC 2218 (Comm) covered in our previous blog post, demonstrated the difficulty in disposing of bad s68 challenges quickly. This judgment emphasised that an oral hearing will usually be granted after a challenge is thrown out on paper, unless the case is "something akin to vexatious". In this case, the summary dismissal of the s68 challenge was nevertheless followed by two further applications, and an oral hearing, before the challenge was finally thrown out.

Both of these recent cases promote the summary dismissal process in paragraph O8.5 of the Commercial Court Guide as a useful tool for weeding out unmeritorious s68 challenges, but the decisions differ on how to treat applications to set aside orders dismissing such challenges. The decision in Midnight Marine v Thomas Miller takes a tougher line than the earlier Asset Management Corporation of Nigeria v Qatar National Bank decision, suggesting that the oral hearing referred to in the summary dismissal process should be a very short hearing, directed only at the question of whether the application has a real prospect of success.

Background

The underlying dispute in Midnight Marine v Thomas Miller concerned an insurance claim relating to cargo loss. In 2008, the underwriters commenced arbitration under the insurance policy, seeking a declaration of no liability. The assured did not appoint an arbitrator and took no steps in the arbitration until July 2017, some nine years later, at which point the assured appointed an arbitrator and attempted to continue the proceedings. The tribunal ultimately issued an award holding that any claim by the assured was time-barred, and that it should in any event be dismissed under s41(3) of the Arbitration Act 1996 for inordinate and inexcusable delay. The assured then challenged these decisions under both s68 and 69 of the Arbitration Act 1996.

The applications to the English High Court

The assured’s s68 challenge was on the basis that the arbitrators had "exceeded their jurisdiction" by dismissing the claim pursuant to s41(3) for inordinate delay, as this section only applied to delay on the part of the "claimant" in the arbitral proceedings, whereas the assured was the respondent. The assured also sought permission to appeal under s69 on a question of law, contending that the tribunal was wrong to conclude that the underwriters’ notice of arbitration was insufficient to refer the assured's claim for an indemnity to arbitration and thus stop time running for the purposes of the applicable limitation period.

Both parties served written submissions, and the underwriters’ submission included an application to dismiss the s68 challenge without a hearing, under paragraph O8.5 of the Commercial Court Guide. Both the s68 and s69 challenges were then dismissed on paper, and the assured appealed.

Decision of the High Court

After an oral hearing the court once again dismissed both applications. In doing so, the court expressed concern at the considerable time and expense incurred in dealing with the unmeritorious challenges. The s68 application was "hopeless" and in light of this, the s69 application could not succeed. If the assured's claim for an indemnity had not been validly referred to arbitration by the underwriters' commencement of the arbitration, then the claim was time-barred. But if the claim was, in fact, referred to arbitration in this way in 2008, then there had subsequently been inordinate and inexcusable delay in pursuing that claim. The dismissal of the claim had not caused substantial injustice to the assured.

The judge commented on the court's power to dismiss s68 applications without a hearing and emphasised that this case was a "strong candidate" for this process. The applicant had a right to an oral hearing under paragraph O8.5 of the Commercial Court Guide, and could attempt to apply to set aside the court’s decision to dismiss the s68 application on paper. However, an oral hearing of this kind should be brief. The question at that hearing "will simply be whether there is a real prospect of success such that the case should be allowed to go forward to a full hearing of the section 68 application." If the initial oral hearing is allowed to become a full hearing of the s68 application with written submissions and evidence, then this undermines the usefulness of the summary dismissal process itself.

The judge proposed a more streamlined procedure to ensure that such oral hearings do not effectively become a full s68 hearing. He suggested that in most cases:

• Hearings should last no more than 30 minutes;
• Hearings should, where possible, be listed before the judge who initially dismissed the application on paper;
• There should be no need for further written submissions, other than a succinct explanation from the applicant of what it contends is wrong with the dismissal on paper; and
• Respondents should not usually attend the oral hearing, or should not recover their costs if they do so.

Comment

It remains to be seen whether the judge’s robust proposals in Midnight Marine v Thomas Miller will be adopted. A rather different approach was taken by the court in Asset Management Corporation of Nigeria v Qatar National Bank, where the judge expounded the benefits of an oral hearing at which parties' positions can be advanced and tested in a way not always readily achieved on paper, with questions asked and answered and a valuable exchange between counsel and judge. This stands in stark contrast to the suggestion in Midnight Marine v Thomas Miller that respondents should generally not even attend such a hearing. The judge in Midnight Marine v Thomas Miller fairly recognised that the process for these hearings "merits further consideration by the judges of this court", and that there may well be further developments on this issue before a final and consistent approach becomes settled practice.

As we set out in our previous blog post on the summary dismissal of groundless s68 applications, the fact that dismissed s68 challenges may still end up in court at an oral hearing has the potential to reduce the efficacy of the summary procedure. The procedural suggestions made in Midnight Marine v Thomas Miller are, therefore, a welcome step. If generally adopted, this approach would lead to the faster rejection of unmeritorious challenges, whilst retaining the safeguard of an oral hearing for appropriate cases.

For more information, please contact Craig Tevendale, Partner, Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.