Commercial Court firmly rejects attempt to re-open challenges to arbitral award (WSB v FOL)

The Commercial Court has dismissed an application to set aside an order which dismissed challenges under sections 67 and 68 of the Arbitration Act 1996 (AA 1996) on the papers and refused permission to appeal under AA 1996, s 69. In doing so, the Commercial Court has provided concrete guidance on the court's approach to challenge applications and has confirmed the robust stance that it will adopt, in particular where the applicant requests an oral hearing. The court held that decisions to refuse permission to appeal under AA 1996, s 69 on the papers are final, and applicants will not be entitled to a hearing. Further, where a judge has dismissed an application under AA 1996, ss 67 or 68 and a party applies to set aside that order, in general, any hearing on the point should be very short, with limited written submissions and the respondent should not attend.

This decision is consistent with the recent changes to the Commercial Court Guide and in reaching his decision, the judge emphasised the importance of challenges to arbitral awards being resolved without protracted litigation and unnecessary delay or expense.

What are the practical implications of this case?

This case provides welcome practical guidance on the English court's approach to applications to challenge arbitral awards. In particular, it clarifies that:

• where a judge has dismissed a AA 1996, ss 67 or 68 challenge on the papers and the party affected by the order applies to have it set aside under CPR 3.3(5), the court will only allow the challenge to be heard orally if there is good reason to do so or the challenge has a real prospect of success. Such hearings should be no more than 30 minutes, ideally before the same judge who has dismissed the application, and there should be no further written submissions save for the applicant to explain succinctly what is said to be wrong with the judge's reasons for dismissing the application without a hearing. The respondent should not attend, or if they do, they should not recover their costs
• where a judge has refused permission to appeal under AA 1996, s 69 on the papers, this decision is final and the applicant will not be entitled to a hearing. This is consistent with AA 1996 and the Commercial Court guide, and a party cannot seek to circumvent these provisions by seeking to set aside an order under AA 1996, s 69 and have the matter relisted for a hearing
• applications under AA 1996, s 68 in respect of serious irregularities will not succeed if a tribunal decides a case on the basis of a point not strictly argued or pleaded by a party. AA 1996, s 68 would only be triggered if a point 'was not raised at all during the proceedings which deprived a party of the opportunity to address the arbitrator on it and the arbitrator proceeds to base his decision on that point'

What was the background?

WSB (the lender) and FOL (the borrower) entered into a Securities Loan Agreement (SLA). The SLA was governed by English law and contained an arbitration clause providing for JAMS arbitration in London. Following some due diligence concerns, WSB decided not to advance the loan and terminated the SLA, alleging an event of default by FOL. FOL commenced arbitration proceedings claiming, among others, the return of its collateral. In the arbitration award, the arbitrator found in FOL's favour, and determined in particular that there had been no event of default and ordered repayment of the collateral that FOL had advanced.

WSB brought a number of challenges to the award under AA 1996, ss 67–69. Mrs Justice Moulder DBE dismissed WSB's challenges under AA 1996, ss 67 and 68 on the papers without a hearing under CPR 3.3(4) and refused WSB permission to appeal under AA 1996, s 69.

WSB applied to the Commercial Court under CPR 3.3(5)(a) to set aside the order made by Moulder J DBE, contending that the judge was wrong to determine WSB's challenges under AA 1996, ss 67 and 68 without a hearing and that there was good reason for disagreeing with the decision. WSB requested an oral hearing of its application, including in relation to its AA 1996, s 69 application.

What did the court decide?

The judge dismissed the application in its entirety.

Permission to appeal under section 69

The judge determined that WSB was not entitled to seek an oral rehearing of Moulder J DBE's decision to refuse permission to appeal under AA 1996, s 69. This was consistent with AA 1996, s 69(5), which states that the court shall determine an application for leave to appeal without a hearing unless it appears to the court that a hearing is required. This was also why O.8.7 of the Guide only referred to AA 1996, ss 67 and 68, and not AA 1996, s 69—the difference was that under AA 1996, ss 67 and 68, there is an 'as of right' hearing because the challenge is to the tribunal's substantive jurisdiction or on the ground of a serious irregularity affecting the tribunal's process. By contrast, under AA 1996, s 69, there is a threshold 'permission' application which is determined without a hearing. Moulder J DBE had not given permission because the point was not one of general importance or one which for some other special reason should be considered by the Court of Appeal. This could not be circumvented by seeking to set aside her order and having the matter relisted for a hearing. In reaching this decision, the judge emphasised the importance of challenges to arbitral awards being resolved without protracted litigation and unnecessary delay or expense.

After reaching this decision, the judge then briefly dealt with a threshold point made by counsel for FOL, which was that the parties had excluded AA 1996, s 69 in the SLA by agreeing that any award was ‘final, unappealable and legally binding on the parties’. However, the judge concluded that this clause was referring only to the JAMS optional arbitration appeal procedure and that it was not referring to appeals under AA 1996, s 69. Therefore, AA 1996, s 69 had not been excluded by the parties.

Application under section 68

First, the judge made some comments on the approach of the court to applications to set-aside decisions on the papers on AA 1996, ss 67 and 68. He said the court will only allow AA 1996, ss 67 and 68 challenges to be heard orally if there is good reason to do so or a real prospect of success.

Citing the decision of Mr Justice Males (as he then was) in Midnight Marine v Thomas Miller [2018] EWHC 3431 at [38], the judge stated that any hearing should be typically no more than 30 minutes, and if possible listed before the same judge who has dismissed the application. There should be no need for further written submissions save for the applicant to explain succinctly what is said to be wrong with the judge's reasons for dismissing the application without a hearing, without the need (in general) for the respondent to attend. Put another way, the test had been described as being 'to give due weight to the decision of the judge who dealt with the matter without a hearing, [the applicant] should be able to identify a good reason for disagreeing with his or her decision' (see the judgment of Mr Justice Mostyn in Kuznetsov, R (on the application of) v London Borough of Camden [2019] EWHC 2910 at para [24]).

In WSB's application under AA 1996, s 68, it argued that the arbitrator had made a finding based on an argument that was not advanced by FOL, and to which WSB had no opportunity to respond. However, the judge found that the finding was 'clearly in play'. He said that it will not amount to a serious irregularity if a tribunal decides a case on the basis of a point not strictly argued or pleaded by a party. This provision would only be triggered if a point 'was not raised at all during the proceedings which deprived a party of the opportunity to address the arbitrator on it and the arbitrator proceeds to base his decision on that point'.

Application under section 67

WSB challenged the award on two grounds, both of which were dismissed by the judge. The second ground related to the arbitrator's decision not to award WSB its arbitration costs. In this regard, WSB relied on the parties' prior agreement in the SLA that FOL would pay any arbitration costs. However, referring to AA 1996, s 60, the judge confirmed that the parties' prior agreement on costs was invalid and that the arbitrator was entitled to reach a decision on costs based on the JAMS rules.

This analysis was first published by Lexis®PSL on 28 March 2022 and can be found here (subscription required).

For more information, please contact Craig Tevendale, Partner and Liz Kantor, Professional Support Lawyer or your usual Herbert Smith Freehills contact.