12/03/2020

Blue Moon: Commercial Court upholds section 68 arbitration award challenge

Challenges to arbitration awards under s. 68 Arbitration Act 1996 (“the Act”) usually fail, with the recently published Commercial Court Users’ Group Meeting minutes[1] noting how “very few” succeed.

In Xstrata Coal Queensland Pty Ltd v Benxi Iron & Steel (Group) International Economic & Trading Co. Ltd (No. 2) [2020] EWHC 324, David Lewis QC acted for the claimants in successfully challenging an award under s. 68.

The case was exceptional in that the challenge was brought on behalf of the award creditors, following their unsuccessful enforcement efforts in the PRC; the majority of such challenges are brought by aggrieved award debtors.

By a 2010 LCIA Arbitration Award (“the Award”), the claimants were awarded US$27.8 million in damages against the respondent for non-performance of a contract for the sale of (Australian) Oaky Creek coal (“the Sale Contract”).

Enforcement of the Award pursuant to the New York Convention was refused by the Courts in the PRC in 2014 on the grounds that the Sale Contract referred to the fourth seller as ICRA NCA Pty Ltd, whereas the fourth claimant in the arbitration, and the fourth award creditor, was ICRA OC Pty Ltd. The claimants’ case is that there was a mistake in the Sale Contract.

In 2017, Mr Justice Knowles CBE exercised the Court’s power under s. 79 of the Act to extend time for the claimants to apply to correct the Award, to explain how it dealt with this disparity, under Article 27.1 of the LCIA Rules (“the Rules”) (see Xstrata Coal Queensland Pty Ltd v Benxi Iron & Steel (Group) International [2017] 1 All E.R. (Comm.) 299, in which David Lewis QC also acted for the successful claimants).

The Tribunal subsequently ruled, however, that it could not accede to the claimants’ application because during the arbitration nobody had addressed the fact the Sale Contract referred to ICRA NCA Pty Ltd.

Following the Tribunal’s refusal, the claimants promptly challenged the Award under s. 68(2)(f) on the grounds of “uncertainty or ambiguity as to the effect of the Award”.

Time-bar

The first main issue was whether the claimants’ application was time-barred.

S. 70(3) of the Act requires any court challenge to an award to be brought within 28 days of the award or if there has been an arbitral process of appeal or review, within 28 days of the date when the applicant was notified of the result.

It was common ground that the claimants’ application under Article 27 of the Rules (the equivalent of s. 57 of the Act) is not an arbitral process of appeal or review.

It was also common ground that if the challenger has made an application to the tribunal under Article 27 (or s. 57), which application is “material” to its subsequent Court challenge, and which application has succeeded, then the date of the Award, for the purposes of s. 70(3), is the date of the corrected award, such that the 28-day period runs afresh.

By contrast, the respondent argued that if the correction application has failed, there is no corrected award and so no basis upon which the date of the Award falls to be postponed. While the claimants may have brought their challenge within 28 days of the Tribunal’s refusal to correct the Award, it was over six years after the date of the Award itself.

Having considered a number of earlier authorities addressing the impact of “material” applications under Article 27 and s. 57, Mr Justice Butcher rejected the respondent’s arguments. He held that any “material” application under Article 27 (or s. 57) has the effect of postponing the date from which the 28-day time limit for a Court challenge runs, irrespective of whether it succeeds or fails. The Judge noted that to hold otherwise would encourage protective Court applications for extensions of time to bring the challenge at the time of making the s. 57 or equivalent application.

Applications under s. 57 (or the equivalent institutional rule) are important, not only because they may lead to relevant corrections to award but also because s. 70(2)(b) requires a party to exhaust such remedies before it brings any court challenge to the award. A party bringing such an application remain on risk that, if it is deemed not to be “material” to any follow-on court challenge, it will not serve to extend the time for any such challenge. This judgment has, however, confirmed that there is no further risk depending upon whether or not the application succeeds.

Uncertainty or ambiguity as to the effect of the Award

The second main issue was whether there was uncertainty or ambiguity as to the effect of the Award. The Judge held that there was.

First, the Judge rejected the submission that it was necessary for a s. 68 challenge that the tribunal itself had gone “so wrong in its conduct of the arbitration that justice calls out for it to be corrected”; even if that was the paradigm case, there were other irregularities that could arise (e.g. an award procured by fraud) without the tribunal having gone wrong.

Secondly, even though it might be plain to an English lawyer that the effect of the Award was to treat ICRA OC Pty Ltd as party to both the Sale Contract and the arbitration agreement and so as a beneficiary of the Award, this was not unambiguously spelt out. That had enabled the respondent to submit to the PRC Courts that there needed to have been, but had not been, a correction to the Sale Contract during the arbitration. Thus, uncertainty or ambiguity in the Award was manifested in the refusal of the PRC Courts to enforce the Award, notwithstanding that an English lawyer could say with confidence what was the effect of the Award.

Finally, the Judge rejected a floodgates argument, reasoning that an award debtor would not ordinarily be able to rely on s. 68(2)(f) by invoking enforcement difficulties against itself, and an award creditor would also need to show that any uncertainty or ambiguity has caused, or will cause, substantial injustice.

In the circumstances, Mr Justice Butcher remitted the Award to the Tribunal. The 2010 arbitration re-opens 10 years on…

Read the judgment

 

[1] https://www.judiciary.uk/wp-content/uploads/2020/02/Minutes-of-Comm-Ct-Users-Group-20.11.19.pdf