London Maritime Arbitration

Clare Ambrose; Karen Maxwell and Michael Collett KC

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CHAPTER 22 Challenging an award in the English courts

A. Introduction

22.1 The starting point under English law is that an award is final and binding on the parties unless challenge is possible in accordance with the 1996 Act.1 The 1996 Act and the courts’ current approach to arbitration are firmly in favour of the finality of awards and the courts will give awards a benevolent interpretation for this purpose.2 Time-consuming and costly challenges in the courts are directly contrary to the parties’ objective in choosing arbitration as an efficient means of dispute resolution by their chosen tribunal. The 1996 Act is founded on the principle that the object of arbitration is to give effect to the parties’ choice to refer their dispute to arbitration and that the courts should only intervene to support the arbitral process rather than displace it.3 Accordingly, there are strict limits on remedies for challenging awards (for example, time limits and the requirement of leave to appeal) and the court will not interfere except as provided by that Act. The 1996 Act aims to balance the interest of ensuring a right to challenge where the award or arbitration is plainly outside what the parties could reasonably have expected4 against the principle of giving effect to the parties’ agreement to arbitrate. The Act is designed to ensure that challenges are not used as

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illegitimate delaying devices (for example, the court may require a challenging party to provide security for the costs of the application). Under the Act there are four main methods of challenging an award in the courts:

• appeal for error of law;
• challenging an award on grounds of serious irregularity;
• challenging an award for want of jurisdiction;
• challenging an award at the enforcement stage (see ).

22.2 A successful challenge at the enforcement stage would result in the English court refusing to enforce the award. The other methods of challenge may result in the award (or part of it) being confirmed, varied, remitted, set aside or even declared to be of no effect. This will affect enforcement by an English court (see ) and will usually affect enforcement in a foreign court although different courts take different approaches (the French courts have notably been willing to enforce an award that has been successfully challenged in the place of the seat).5 Remission generally involves “sending back” the award (or part of it) to the tribunal for further consideration. Setting aside involves a decision that the award (or part of it) should have no binding effect.

B. Appeals

22.3 The jurisdiction of the English courts to correct some errors of law in awards is a recognised, if not always welcome, feature of English arbitration. The 1996 Act maintains a limited right of appeal because the DAC considered that parties generally contemplate that the law will be properly applied by the arbitrators in the resolution of their dispute.6 Around 75 per cent of appeals heard under section 69 relate to shipping disputes.7 This is mainly because the LMAA Terms, unlike institutional rules such as those of the LCIA or ICC, do not exclude the right of appeal (save under the Small Claims Procedure or partially under the Intermediate Claims Procedure). Shipping disputes appear also to raise a higher number of questions of contract law than other areas. 22.4 The rights of appeal are strictly limited, largely following the scheme of the Arbitration Act 1979, which was intended to inject speed and finality into the arbitral process in preference to meticulous legal accuracy.8 The system adopted under the 1996 Act maintains two hurdles which must be overcome by the appealing party. First, leave9 to appeal must be obtained in accordance with section 69(3) unless all the other parties to the arbitration agree10 that an appeal can be made. As the second hurdle, the appealing party must then succeed at a substantive appeal hearing.

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22.5 Ordinary contractual principles would apply to determine whether parties have agreed that an appeal on law may be made without permission.11 However, an agreement on an appeal will not enable the parties to confer jurisdiction on the court which would not otherwise exist (e.g. to appeal on questions of fact).12 Even if the parties agree that an appeal can be made, the court’s jurisdiction will be subject to the conditions of sections 69 and 70 (for example the appeal must relate to a question of English law and the applicant must exhaust available arbitral processes of appeal or recourse for correction of errors).

Agreements excluding the right of appeal

22.6 The existence of a right of appeal under section 69 (albeit subject to the requirement of obtaining leave) is justified on the basis of the parties’ expectations of an award being correct on the law; it is not based on public interest in the legal accuracy of awards. Accordingly, the parties can agree to exclude the right to appeal under section 69. An agreement to dispense with reasons for the tribunal’s award is considered as an agreement to exclude the court’s jurisdiction on appeals.13 For example, the right to appeal is excluded under the LMAA Small Claims Procedure. 22.7 General principles of contract law will determine whether parties have agreed to exclude the right to appeal (although the agreement must be in writing14) and such an agreement may be incorporated by reference to another contract.15 A provision that the tribunal’s decision shall be “final, conclusive and binding” will not be construed as an exclusion agreement.16 22.8 Under paragraph 14 of the LMAA Intermediate Claims Procedure (2017) there is express agreement that there will be a right of appeal where the tribunal certifies that the dispute involves a question of law of general interest or importance to the trade or industry in question (otherwise any right of appeal is excluded). This provision would clearly count as an agreement for the purposes of section 69(2)(a) and is intended to avoid the cost of applying for permission to appeal where the tribunal is satisfied that there is a question of general importance.17 It has not yet been tested and issues will probably arise as to the scope of the agreed right of appeal, in particular where a party seeks to appeal on questions beyond those the tribunal has clearly certified.

Questions of law arising out of the award

22.9 An appeal is only possible for questions of law arising out of the award and the question must be one of English law.18 Thus, if the question is governed by a foreign law (or principles of justice and fairness, or non-national systems of law such as Sharia law) an appeal

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under section 69 will not be available. The tribunal’s findings on issues of fact are final unless the award can be challenged on independent grounds, such as serious irregularity or want of jurisdiction.19 The distinction between questions of law and fact can sometimes be difficult to draw. Questions of law normally relate to the identification of the correct rules and tests which ought to be applied to determine the legal consequences of given facts or words.20 These include:

• the interpretation of contracts and statutes;
• the determination of the applicable burden of proof;
• the identification of the appropriate rules governing the recovery of damages; or
• the interpretation of the principles governing the existence and scope of a party’s duties in contract or tort.

22.10 Questions of fact, by contrast, relate to the particular facts and circumstances giving rise to the dispute, including what was said or intended and how those facts should be regarded. These include issues such as:

• the condition of a vessel;
• the cause of an accident; or
• whether a master acted unreasonably.

22.11 A question of mixed fact and law may arise where a particular issue requires an assessment of both law and fact, for example whether:

• a contract has become frustrated by delay;
• a relevant causal connection exists;21
• damages are too remote to be recoverable; or
• a party owes a duty of care.

22.12 Such mixed questions can be the subject of an appeal but the court would ordinarily only interfere with the tribunal’s decision if it was obviously wrong. If on the face of the award the tribunal has applied the right test the court will only interfere if on the facts found no reasonable person could have reached that conclusion. Hamblen J in The Sylvia explained that in such circumstances, “The [appellants] have to show that there must have been a failure by the arbitrators to apply the correct legal test by demonstrating that their conclusion was necessarily inconsistent with the application of that test.”22

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22.13 The requirement that the question of law must arise out of the award means that a party may not use section 69 to challenge an error of law made during the arbitral proceedings (for example, if an amendment is refused on the mistaken ground that the amended claim would be time-barred) unless that error forms part of the award. The rule also means that the court will not usually look beyond the award in assessing whether the arbitrator made an error of law. The parties cannot re-open the factual investigation by raising subsequent correspondence or extrinsic evidence relating to matters raised before the arbitrator.23 22.14 Questions as to the proper construction of a contract (or the existence of a contractual obligation) are treated as pure questions of law.24 However, often these questions are fact specific, for example whether a term is to be implied as a matter of business efficacy, and will depend on the relevant factual matrix, including market practice and what was reasonably known to the parties. If the question is highly fact specific a judge may be more likely to give weight to the tribunal’s market experience and will only reverse the decision if satisfied that the tribunal has come to the wrong answer.25 In practice this means that in highly fact specific questions of construction the court will be more likely to refuse permission to appeal on grounds that the tribunal was not obviously wrong. 22.15 The courts are vigilant to ensure that parties are not allowed to re-open the tribunal’s findings of fact by dressing them up as questions of law, for example by alleging that a finding was made on the basis of no evidence. Steyn LJ in The Baleares 26 suggested that an appeal on such grounds would be regarded as a “transparent tactic” to circumvent the rule that the arbitrators’ findings of fact are conclusive. This approach was firmly endorsed in Demco Investments & Commercial SA v Se Banken Forsakring Holding Aktiebolag 27 where Cooke J considered that the requirement under section 69(3) for the court to assess the tribunal’s alleged error of law “on the basis of the findings of fact in the award” was conclusive to preclude an appeal against findings of fact under the 1996 Act.28 The court would also reject any attempt to challenge the tribunal’s findings of fact as a serious irregularity on grounds that making a mistake of fact is a breach of the tribunal’s duty to act fairly as between the parties.29

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Discretion to grant permission to appeal

22.16 Section 69(3) of the 1996 Act provides that:

Leave to appeal shall be given only if the court is satisfied-

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