THE AUTHOR: Zuhair Farouki is an associate at Zaiwalla & Co
A party has just lost an arbitration and a substantial award has been made against it. There is a strong sense of injustice, not just because it lost but because it is convinced that the decision is wrong on a point of law. The party’s lawyers immediately turn to assessing their client’s options, spurred on by the loss to find creative ways to challenge the award. If the relevant rules of arbitration do not provide for an appeal process, then the party is compelled to turn to the national courts where the arbitration was seated.
Whilst the legal systems of many leading arbitration seats will not allow the losing party to appeal on a point of law, section 69 of the English Arbitration Act 1996 (the “Act”) provides the appeal mechanism lawyers could be looking for. In a market where the top arbitration seats present many of the same benefits, this mechanism enables London to distinguish itself from its competitors.
Section 69 of the Act
An appeal under section 69 of the Act gives the losing party in an arbitration that is seated in England and Wales (see section 2(1)) the opportunity to appeal against the tribunal’s award on a question of English law (see section 82(1)). There are, however, preliminary issues that need to be addressed before a losing party can even consider launching an appeal. The main issue is that section 69 is non-mandatory and can be excluded in the parties’ arbitration agreement (see section 69(1)). This occurs either when the agreement adopts institutional rules that automatically exclude appeals, such as ICC Rules (2021) Art. 35(6) or LCIA Rules (2020) Art. 26.8, or when the parties agree to exclusively opt out of the provision.
Assuming that section 69 was not excluded, a party wishing to challenge the award on a question of law must either obtain consent of all the other parties to the proceedings (which is highly unlikely) or make an application for leave to appeal (see section 69(2)). Under section 69(5), an application for leave to appeal is usually determined without a hearing. Permission to appeal is granted if the appellant can persuade the court that each limb of the test under section 69(3) is satisfied. As detailed further below, the requirements of section 69(3) are very difficult to satisfy.
If permission is granted, there will be a hearing and the court will consider submissions where the appeal on the point of law is argued by the parties. The court has broad powers to make an order under section 69(7): it can confirm the award, vary it, remit it to the arbitral tribunal for reconsideration, or set it aside. Notably, under section 69(7) the default position is that the court shall not set aside an award (in whole or part) unless it would be inappropriate to remit matters for the tribunal’s reconsideration. The court’s power to send discrete issues for reconsideration can be an invaluable option for commercial parties when compared with the time and costs consequences of setting aside the award in its entirety.
Leave to appeal test
Parties who are eligible to launch a section 69 appeal must contend with the high threshold for the English courts to grant leave to appeal in section 69(3):
(3) Leave to appeal shall be given only if the court is satisfied—
(a) that the determination of the question will substantially affect the rights of one or more of the parties,
(b) that the question is one which the tribunal was asked to determine,
(c) that, on the basis of the findings of fact in the award—
(i) the decision of the tribunal on the question is obviously wrong, or
(ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and
(d) that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.
Interpretation of the test by the English courts
The most recent Commercial Court Users’ Guide Meeting Report suggests that, historically, around 30% of applications are granted leave to appeal, meaning that less than one in three applications satisfy section 69(3). The main cause for this low rate is, undoubtedly, the applicants’ difficulty with satisfying section 69(3)(c). However, before delving into why it is such an onerous leg of the test, the other sections are considered first.
Section 69(3)(a) will be satisfied as long as the question is not trivial, academic, or of marginal importance, whilst section 69(3)(b) will be met if the issue of law was put to the tribunal. A recent clarification on how the court will interpret section 69(3)(b) arose out of the CVLC Three Carrier Corp v Arab Maritime Petroleum Transport Co [2021] EWHC 551 (Comm). The court held that, while the question does not need to have been put to the tribunal in exactly the form in which it is posed to the court, for this section to be satisfied the question of law must be fundamental to the issues that were put to the tribunal.
If all other conditions in section 69(3) were met, section 69(3)(d) is likely to be satisfied too. However, this limb of the test gives the court an overriding discretion when granting permission to appeal. If, for example, specific provisions in the arbitration agreement indicate that the parties wanted to achieve a prompt resolution of a potential dispute, then granting a permission to appeal may not be deemed “just and proper”.
Conversely, section 69(3)(c) is challenging to navigate for several reasons. The first part of this section limits appeals to questions of law and not fact, a distinction that can be difficult to make. The second part of this section forces parties to select one of two arguments they must convince the court of, yet both choices present difficulties for the applicant.
Under section 69(3)(c)(i), the statutory use of the phrase “obviously wrong” sets uncompromising requirements for the losing party to satisfy and is a prime example of the English court’s non-interventionist approach in relation to arbitrations. In HMV UK Limited v Propinvest Friar Limited Partnership [2011] EWCA Civ 1708, Arden LJ advised that “obviously wrong” meant “being unarguable or making a false leap in logic or reaching a result for which there was no reasonable explanation“.
Alternatively, under section 69(3)(c)(ii) a party needs to demonstrate that the questions are of public importance and that the tribunal’s decision is open to serious doubt. Under this section, the applicant is faced with a lower threshold regarding the tribunal’s error on the question of law than the threshold imposed by section 69(3)(c)(i). However, this generosity is counterbalanced with the requirement that the question of law is of public importance. It may not be clear what is required for a question of law to satisfy this limb of the test, though case law can help guide applicants. For example, the applicant would have a better chance of satisfying this section if the issues to be decided would have far-reaching ramifications in the relevant industries (Equitas Insurance Ltd v Municipal Mutual Insurance Ltd [2018] EWCA Civ 991).
The appeal
Once a party is granted leave to appeal, both parties will prepare to present their submissions on the questions of law at the substantive hearing. Whilst a party would have done well to have reached this stage, there is no room for complacency as success at the substantive hearing is rare. The Commercial Court Users’ Guide Meeting Report indicates that only one in six applications that are granted leave to appeal are allowed, meaning just 5% of all applications to appeal are ultimately successful.
There are some recent prominent successes: Tricon Energy Ltd v MTM Trading LLC [2020] EWHC 700 (Comm), Alegrow S.A. v Yayla Agro Gida San ve Nak AS [2020] EWHC 1845 (Comm), and CVLC Three Carrier Corp v Arab Maritime Petroleum Transport Co [2021] EWHC 551 (Comm). However, these judgments have highlighted the English courts’ reluctance to interfere in arbitral awards, only doing so due to the distinctive facts of each case:
- In Tricon, the court held that the tribunal had been wrong to conclude that the claim was not time-barred under the provisions of the relevant contract. Contrary to the findings of the tribunal, Knowles J ruled that the original claim was filed without all the necessary documents and was therefore defective. As the limitation period had subsequently passed, the claim became time-barred;
- Alegrow reiterated the court’s reluctance to overturn arbitral awards, emphasising that, even after leave to appeal has been granted, English courts should strive to uphold arbitration awards. Where there may be uncertainties, courts should construe the award in such a way as to make it valid rather than invalid. For example, if the award contains insufficient facts to enable the court to tell whether the arbitrators’ conclusion of law was justified or not, English courts will reasonably assume that any justifying facts which could exist did exist; and
- In CVLC, the court concluded that the tribunal’s decision to imply a term into a shipping contract was incorrect as it went against the established position under English law that a term should not be readily implied unless it is required to make the contract work.
Recent case law at the substantive appeal stage thus further demonstrates that English courts are averse to overturning an award and will scrutinise the facts of each and every case before deciding to do so. This approach signals to commercial parties that London has the capacity to offer a distinct, though precarious, path to justice should an arbitral award be wrong on a point of law, whilst simultaneously respecting the parties’ freedom to arbitrate.
London’s Unique Selling Point
As a seat of arbitration, London offers commercial clients numerous positives: its general reputation and recognition, its longstanding formal legal infrastructure, the impartiality of its legal system, and its track record in enforcing arbitration agreements and awards. While other top seats, for example, Paris, Singapore, and New York, can claim that they also offer parties many, if not all, of the same positives, London’s route to appealing a tribunal’s decision on a question of law certainly stands out.
Paris
France is a staunch arbitration-friendly jurisdiction and its legislation largely limits the ability of parties to challenge arbitral awards. The Code of Civil Procedure (“CPP”) allows for domestic arbitrations to be appealed on a point of law, though only if the parties agree (Article 1489, CCP). However, it altogether prohibits appeals against an arbitral award in relation to international arbitration, which only presents annulment as an option (Article 1518, CCP). This system starkly contrasts the adaptable and cost-effective remedies provided for by section 69(7) of the Act.
Paris therefore does not offer international parties a route to appeal a tribunal award, as arbitral awards (for international arbitrations) can only be set aside for grounds limited to those under Article V of the New York Convention. The narrow reasons include amongst others: the arbitral tribunal declared itself wrongly competent or incompetent; the arbitral tribunal was irregularly constituted; and recognition or enforcement of the arbitral award was contrary to international public order (Article 1520, CPP).
Singapore
Despite being based on the English common law system, Singapore is another top arbitration seat that does not allow a challenge to an international arbitration on a point of law (section 19B of Singapore’s International Arbitration Act and section 44 of Singapore’s Arbitration Act). A party can only seek to set aside an award of an international arbitration tribunal on limited grounds, reflecting those available under the New York Convention.
New York
Courts sitting in New York emphasise the importance of the parties’ decision to submit their dispute to arbitration, and therefore seek to interfere as little as possible. Article 7511 of the New York Civil Practice Law and Rules, at state level; and section 10 of the Federal Arbitration Act, at federal level, do not allow an appeal on a point of law. The parties are only permitted to challenge an award through vacating the award. The limited grounds for vacating an award in New York generally follow the grounds for non-recognition of arbitral awards set in Article V of the New York Convention.
London calling
It is notoriously difficult for section 69 appeals to be allowed. However, if a party prefers to safeguard itself from possible injustices deriving from the tribunal’s decision, and the contract in question is governed by English law or may give rise to questions of English law, then it should enter into an arbitration agreement that:
- does not exclude the section 69 appeal process; and
- stipulates London as the seat of arbitration.
Hong Kong comes close to offering a similar mechanism as parties can appeal an arbitral award on a point of law, but it is much more restrictive. The parties must expressly opt into the right to appeal on questions of law (sections 5 and 6, Schedule 2, Arbitration Ordinance (Cap. 609)) as opposed to expressly opting out of the right to appeal under English law. In practice, most London arbitrations under ICC and LCIA Rules opt out of section 69, though the parties can modify the ICC or LCIA Rules in their arbitration agreement to preserve the right of appeal under section 69. Despite the automatic exclusion under some institutional rules, there remains a significant percentage of London arbitrations, mainly under LMAA and GAFTA rules, that automatically offer parties a feature they could only have enjoyed in Hong Kong if they had exclusively opted into it.
London gives commercial parties the prospect of appealing an arbitral decision on a point of law – big deal, or just a quirk? Singapore, now the joint-most popular seat of arbitration (along with London), seems to think it is the former. Its Ministry of Law indicated in December 2020 that it is considering a proposal to allow parties to appeal an arbitral award to the court on a question of law. It is unclear when this proposal would be implemented, but it reveals Singapore’s recognition of London’s advantage over it in this regard. It also alludes to Singapore’s intention to move towards finding a similar balance between respecting the parties’ choice of resolving the dispute through arbitration and permitting the losing party to appeal when an arbitral decision was wrong.
Singapore’s proposal may also stem from the general recognition of the English courts’ unyielding support of arbitration, which enhances London’s arbitration-friendly image despite the availability of a route to appeal an arbitral award on a point of law. Analysis of the results from the 2018 version of Queen Mary and White & Case’s International Arbitration Survey reveals that the majority of respondents value the English courts’ support of arbitration. They also appreciate London’s legislative framework applicable to arbitration, signifying that the section 69 mechanism is more likely seen as arbitration-friendly than not.
This perception is also a key reason why most respondents who participated in the 2018 Survey did not believe that Brexit would have a negative impact on the use of London as a seat. The 2021 Survey proved that the participants of the 2018 Survey were correct in their prediction as London’s popularity has not been significantly impacted thus far. Whilst the biggest factors behind London’s position as a top seat of arbitration will continue to be the English courts’ legislative framework and support of arbitration, the section 69 procedure is a unique feature and offers commercial clients a route to appeal that is currently unavailable at other top seats.
Zuhair Farouki is an associate at Zaiwalla & Co (London), practising international arbitration and commercial litigation.
You can contact him at zuhair.farouki@zaiwalla.co.uk.
