S68 challenge sails through: English court remits award back to tribunal for "serious irregularity" in case on the papers with a non-participating respondent

In Mare Nova Incorporated v Zhangjiagang Jiushun Ship Engineering Co., Ltd [2025] EWHC 223 (Comm), the English Commercial Court allowed a challenge to an arbitral award under s68 of the Arbitration Act 1996 (the Act). The Court held that the tribunal's ruling on an issue which had not been raised in the proceedings constituted a serious irregularity. Although the Court dismissed the (alternative) application under s69 of the Act, the Court took into account for the purposes of the s68 application that the tribunal's construction of the relevant contractual provisions was "obviously wrong in law". The Court remitted the award to the tribunal for reconsideration, ordering that the reconsideration "must proceed on the basis of the law" as determined by the Court in its judgment.  

This case is a rare example of a successful s68 challenge. It is also unusual because the Court scrutinised not only the tribunal's denial of the Claimant's opportunity to make submissions (in circumstances where the Respondent was not participating), but also the correctness of the tribunal's determination as a matter of law and applied that to the reasoning on the s68 application.

Background

The dispute arose in relation to ship repair works performed by the Respondent, a ship repairer operating a shipyard in China, on the Claimant's vessel M/V "INASE" (the Vessel). The repair works were performed pursuant to a contract between the parties (the Contract), which incorporated certain General Conditions of Tender (the General Conditions). After the Vessel set sail from the Respondent's shipyard, the crew discovered damage to the Vessel.

The Claimant commenced arbitration proceedings against the Respondent, claiming (i) damages for breach of contractual obligations, (ii) damages for negligence, or (iii) money due under a six-month guarantee clause for defective works. A sole arbitrator was appointed as the tribunal (the Tribunal) and the ensuing proceedings were conducted on paper only with no hearing. The Respondent did not participate in the proceedings except to raise a jurisdictional objection.

In the Final Award dated 12 February 2024 (the Award) in which it confirmed it had jurisdiction, the Tribunal found that, while the damage to the Vessel was caused by the Respondent in breach of its contractual obligations, the Claimant's representative signed off on the works and the Respondent's liability under the Contract was discharged from the moment the Vessel left the Respondent's shipyard. The Tribunal therefore rejected the primary claims for damages and awarded the Claimant only a lower amount due under the six-month guarantee clause. 

Issues

Against this background, the Claimant commenced proceedings in the English Commercial Court to challenge or appeal the Award under ss68 and 69 of the Act. S68(2)(a) of the Act enables parties to challenge an award for "serious irregularity" which causes "substantial injustice" where the tribunal fails to comply with its general duties under s33 of the Act. The Claimant argued that the issue of discharge of liability was never raised in the proceedings by any party or by the Tribunal and, as such, the Claimant had no opportunity to address it. 

S69 of the Act enables parties to appeal an award on a point of law, including where the tribunal's decision on the question is "obviously wrong". The Claimant argued that if (in the alternative to its primary case) the issue of discharge of liability was properly raised in the proceedings, then, on a proper construction of the relevant General Conditions, the Tribunal's ruling that the Respondent's liability for breach of contract was discharged was obviously wrong in law.

Decision

The judge, Keyser KC, held that the Tribunal's ruling on discharge of liability, which was an issue which had not been raised in the proceedings, constituted a "serious irregularity" falling under s68(2)(a), namely as a failure to comply with the general duty under s33 of the Act. He found that this irregularity caused "substantial injustice" as the Claimant "lost the opportunity, which had a realistic prospect of success" to persuade the Tribunal that the Respondent's liability was not discharged and that the Claimant was entitled to the larger damages claim.  

As permission to appeal under s69 was only granted in the alternative, Keyser KC decided that the proper course was to refuse the s69 application. However, he decided to address the issue in any event (albeit obiter) because, as he explained, his conclusions on whether the relevant provisions of the General Conditions had the effect of discharging the Respondent's liability (the Discharge Question) formed part of the reasoning on which his decision on the s68 challenge was based.

He concluded that the Tribunal's construction of the relevant provisions, and its resulting conclusion that the Respondent's liability for breach of contract was discharged, were "obviously wrong in law".  This was because none of the relevant provisions of the General Conditions could be construed as providing for any discharge of any accrued liability of the Respondent, and least of all, for defects that were unknown and latent when the Vessel sailed from the shipyard. 

In remitting the award to the Tribunal for consideration, he also emphasised that this reconsideration "must proceed on the basis of the law" as determined by the Court in its judgment.

Comment

This decision is a rare example of a successful s68 challenge. The English Court is generally reluctant to interfere with the conduct of arbitration by the tribunal, and as a result, s68 challenges have low success rates (see our blog post on the Commercial Court's latest statistics here). Nevertheless, this decision echoes the Court's approach in preceding cases of taking a firm stance in relation to the denial of the parties' opportunity to make submissions. A recent similar example of a successful s68 challenge is PBO v DONPRO and others [2021] EWHC 1951 (Comm), which concerned (among other things) the tribunal's failure to give the parties the opportunity to make submissions on jurisdiction (which it subsequently found it did not have in relation to part of the claim). These cases demonstrate that a tribunal which is inclined to depart from the case as pleaded by the parties has a general duty to "put in play" such issues for the parties to have an opportunity to make submissions.

It is of particular interest – and unusual – that Keyser KC's decision on the law expressly formed part of the reasoning for his finding of substantial injustice under s68. This was on the basis that the Claimant lost the opportunity to persuade the Tribunal that the Respondent's liability was not discharged, which led the Tribunal to reach a decision that was "obviously wrong in law". While the judge remitted the Award to the Tribunal for reconsideration, he took the further step of outlining in his decision what he considered to be the correct summary of the law and directed that the Tribunal "must proceed on the basis of the law" as outlined.