Two of the key advantages of international arbitration as a dispute resolution mechanism are the finality of outcome and the narrow rights to appeal from an arbitral award. Nevertheless, parties which are dissatisfied with the outcome of arbitral awards often seek to challenge them in the local courts of the jurisdiction in which the arbitration is legally “seated” (generally the venue where the hearing is held, although the parties can agree on a different venue for the hearing should they wish without affecting the legal “seat”).
In a recent case where an arbitration award was then challenged by the losing parties (in which Quinn Emanuel represented the successful party), the Commercial Court in London affirmed the generally-accepted principle that the English courts should only overturn an arbitral award in exceptional circumstances.
Quinn Emanuel acts for Qatar Foundation for Education, Science and Community Development (“QF”). In 2008, QF engaged two international construction contractors, Obrascon Huarte Lain SA and Contrack (Cyprus) Limited (part of the Orascom Construction group) (together the “Contractors”), to design and construct a new state-of-the-art hospital complex in Doha, the capital of Qatar, for a price of approximately £1.9 billion. In July 2014, QF terminated the contract with the Contractors on the basis that they were in default, notably because of significant delays to the project. QF then commenced an arbitration against the Contractors, seeking (among other things) a declaration that the termination of the contract was valid and lawful and that, as a consequence, it was entitled to recover from the Contractors the additional costs of completing the project with a replacement contractor.
In November 2018, the arbitral tribunal, made up of a distinguished ex-English Court of Appeal judge and two experienced Queen’s Counsel (senior barristers) specializing in construction disputes, rendered an award in which it found that the termination of the Contractors’ contract was valid and lawful. One month later, the Contractors commenced proceedings in the Commercial Court in London, where the arbitration was seated, seeking to have the tribunal’s finding on the validity of the termination remitted for re-consideration on the basis of “serious irregularity” (one of the possible limited grounds for challenging an arbitration award under the English Arbitration Act).
The Contractors argued that the tribunal had decided the termination issue in QF’s favour on the basis of a legal analysis which was not put to the parties and which the Contractors had not had an opportunity to address. The Contractors also argued that this alleged serious irregularity had caused them “substantial injustice” (a requirement for challenging an arbitration award successfully for serious irregularity under the Arbitration Act).
Challenges to Awards Under the English Arbitration Act
The Arbitration Act was drafted deliberately to provide only limited grounds for challenging or appealing an arbitral award. In broad terms, the three grounds are that: (i) the tribunal lacked substantive jurisdiction (section 67 of the Act); (ii) there was a serious irregularity causing substantial injustice (section 68); and (iii) the tribunal erred on a point of law (section 69). (The right of appeal under section 69 can be excluded by agreement between the parties, which it often is in the arbitration agreements of major international contracts.)
This case concerned section 68 of the Act, which is intended to address failures in the arbitration process. It provides that an award may be challenged on nine grounds of “serious irregularity”, which largely concern the procedural aspects of the arbitration. It has been stated that section 68 was intended to deal with cases where “the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected”.
If one of the grounds is met, the party challenging the award also has to show that the serious irregularity has caused or will cause it “substantial injustice”, although this is – in practice – almost always the case should serious irregularity be established.
Court Confirms Practice of Upholding Awards Wherever Possible
In her judgment on 2 October 2019, Mrs Justice Carr set out the legal principles governing challenges to arbitral awards. She observed that there is “a high threshold for a successful challenge, reflecting the purpose of the Act which is to reduce the extent of court intervention in the arbitral process” and that section 68 “is not to be used simply because one of the parties is dissatisfied with the result”.
At the same time, Carr J noted that it is well-established that the courts will intervene where appropriate. In particular, if an arbitrator or arbitral tribunal decides the case on the basis of a point which one party has not had a fair opportunity to address, that is likely to amount to a breach of the tribunal’s general duty to act fairly and impartially and to give each party a reasonable opportunity to put its case (as codified in section 33 of the Act) and satisfy one of the grounds for serious irregularity under the Act. She observed: “It is not right that a decision should be based on specific matters which the parties have never had the chance to deal with, nor is it right that a party should first learn of adverse points in the decision against him”.
However, balance is required. Carr J also stated that “this does not mean that every nuance or inference which the tribunal wishes to draw needs to be put to the parties if it differs from that which has been precisely contended for in the arbitration” and that “a tribunal does not have to set out each step by which they reach their conclusion or deal with each point made by a party to an arbitration”.
In this case, the Contractors had argued that the arbitral tribunal had reached their conclusion on the requirements for a valid termination of a contract under Qatari law by adopting a conclusion which had neither been argued for by QF nor raised with the Contractors prior to the arbitrators making their decision. Carr J considered the tribunal’s award, the arguments by counsel during the arbitration and the cross-examination of the parties’ Qatari law experts to determine whether this was borne out. She found that the Contractors’ case on the legal requirements for a valid termination had been addressed by counsel in argument, had been put to the parties’ Qatari law experts (but rejected by QF’s expert) and had been addressed by the Tribunal. She also found that the Tribunal’s reasoning did not involve any conclusions which had not been put to the parties during the arbitration. In doing so, she adopted a robust approach to the interpretation of the award in which she identified the substance of the Tribunal’s reasoning (which was clear in any event). She rejected the approach of the Contractors, which was to seek to critique the award on a word-by-word level and to read into the award statements which simply were not there.
Carr J’s judgment is a good example of the general approach of the English courts, which, as she herself stated, was to “strive to uphold arbitration awards”. London has long been one of the leading centers in the world for international arbitration (alongside with Paris, Geneva, Hong Kong or New York where Quinn Emanuel has also offices) for this very reason: the courts recognize that commercial entities choose arbitration because it is intended to produce final and binding results which cannot easily be challenged, unless something has gone seriously wrong with the arbitral process.
However, the reality is that dissatisfied parties to arbitrations will still often seek to challenge them before the local courts of the seat of the arbitration, notwithstanding the principles set out above. Such challenges must therefore be contested robustly (as this case was).