DETERRING AND SANCTIONING "SPECULATIVE" CHALLENGES TO ARBITRAL AWARDS IN THE ENGLISH COURT: REVISIONS TO THE COMMERCIAL COURT GUIDE

In 2013 the English Court introduced provisions into section O of the Commercial Court Guide designed to deter parties from mounting "speculative" challenges of arbitral awards on the grounds of serious irregularity under s68 of the Arbitration Act 1996 (the Act) (see our blog post here). Small additional changes were also made in 2017.

Yesterday a new, updated version of the Commercial Court Guide was released. Further revisions have been made to Section O to deter unmeritorious challenges to arbitral awards and confirm the court's powers to act to dismiss such claims and sanction parties who bring them. Importantly, unlike the earlier revisions to Section O, many of the amendments relate to challenges for lack of jurisdiction under s67 of the Act.

The amendments include:

• clarification that a section 68 challenge is appropriate only in cases where there are serious grounds for thinking that an irregularity has occurred which has caused or will cause substantial injustice (O8.3).
• the inclusion of a new provision confirming that a jurisdictional challenge under s67 is only appropriate "in cases where there are serious grounds for a contention that the matters relied on do affect the substantive jurisdiction of the tribunal as referred to in section 30 of the 1996 Act rather than being matters to be raised (if at all) under section 68 or 69 of the Act" (O8.4).
• a requirement that a s67 challenge "must be supported by evidence of the facts said to give rise to the absence of substantive jurisdiction" and that this must be set out in the claim form (O8.5).
• confirmation that the court has the power to dismiss any claim under sections 67 or 68 without a hearing and that it is astute to do so where the claim has "no real prospect of success" (O8.6).
• the extension of the right for a respondent party to seek indemnity costs for s67 challenges as well as applications under s68 in circumstances where a claim is initially dismissed on the papers, the applicant requests a hearing of its claim and the hearing also results in dismissal (O8.7).
• confirmation of the court's powers under s70 of the Act to order a party challenging an award to provide security for costs or security for the award, and additional procedural steps that will apply where such security is sought. This includes the need for such an application to be dealt with "very promptly", and that "any such application should be marked with a time estimate of 1 hour or less and listed to be heard on the first available Friday after issue." (O8.11).
• a new provision setting out the process the court will adopt where part of an award is subject to challenge and a party applies to be able to enforce the unchallenged elements of the award (O11.5).
• some minor amendments addressing the practical formalities on certifying finality for enforcement abroad (O11.6 and 7).

Arbitration matters make up 25% of the claims issued in the Commercial Court, reflecting London’s continued status as a leading centre for international arbitration. The majority of these are challenges to awards under s67-69 of the Act.[1] These amendments to the Commercial Court Guide form part of a consistent pattern adopted by the English courts to uphold the finality of arbitral awards and seek to deter the use of s67 and s68 of the Act to mount speculative challenges or delay enforcement. The changes to Section O clearly set out the limited parameters of both provisions of the Act, highlighting the need for "serious" grounds for contending that irregularity has occurred, and spelling out that the issues raised in any s67 challenge must relate to jurisdiction and not be a s68 or s69 challenge in disguise.

The extension of indemnity costs to s67 challenges is further evidence of the court's intention to give parties pause before mounting a challenge. Since indemnity costs were introduced for s68 challenges there has been a reduction in the number of s68 challenges brought, although correlation does not necessarily signify causation. Since the number of s67 challenges is already relatively low (19 in the year 2019-2020), it will be interesting to see whether there is a decline in the number of such challenges over the coming years.

For more information, please contact Chris Parker, Partner, Vanessa Naish, Professional Support Consultant, or your usual Herbert Smith Freehills contact.

[1] S3.1 of the Commercial Courts Report 2019-2020 (p11) (https://www.judiciary.uk/wp-content/uploads/2021/05/6.7302_Commercial-Courts-Annual-Report_Final_WEB.pdf)