Decision confirms parties’ statutory right to challenge awards under s.67 and s.68.

The Court of Appeal has overturned a High Court decision which granted a stay of an application challenging an award pending the determination of related further arbitrations (the Second Arbitration Proceedings), pursuant to s.67 and s.68 of the Arbitration Act 1997 (the Arbitration Act).

The Court’s decision in Minister of Finance (Inc) v International Petroleum Investment Co [2019] EWCA Civ 2080 is a helpful reminder that parties agreeing to an arbitration with a London seat cannot circumvent the mandatory provisions of the Arbitration Act. Parties have a statutory right to challenge an award under s.67 for lack of substantive jurisdiction and s.68 for serious irregularity and cannot contract out of these provisions, notwithstanding any written agreement to the contrary.

The Court recognised that challenges under the mandatory provisions often “lack merit and are nothing more than an attempt by the losing party to put off the day of reckoning”. In such cases, the courts have “adequate powers to bring the challenge to a prompt end”. Indeed, the requirement of proving serious irregularity and substantial injustice is a high hurdle to overcome.

Background

The claimants (entities owned by the Malaysian government) and the respondents (entities owned by the Abu Dhabi government) entered into a binding term sheet that contained an English law arbitration clause. When relations deteriorated, arbitration proceedings were commenced in London, in which the respondents sought to enforce the claimants’ obligations under the binding term sheet.

The claimants alleged that the term sheet was, to the respondents’ knowledge, grossly disadvantageous to them, and that it had been procured as part of a corruption scandal over misappropriated public money.

The arbitration was subsequently compromised by settlement deeds that provided for the issue of a consent award. The award upheld the validity of the binding term sheet and set out the claimants’ obligations and sums owed to the respondents. The claimants alleged that the settlement deeds too, were grossly disadvantageous to them. For example, the terms of the settlement deeds included a provision that the parties waived any right to challenge the consent award “on grounds of jurisdiction or for any other reason”.

A year later, the claimants ceased payment and challenged the consent award in the High Court. They relied on the court’s supervisory jurisdiction under s.67 and s.68, claiming that the settlement deeds and the consent award were void because agreement by them had been obtained by fraud.

The respondents denied all allegations and commenced the Second Arbitration Proceedings under the settlement deeds. Following an application from the respondents, the High Court granted a stay of the claimants’ challenge application and refused the claimants’ request for an injunction preventing the Second Arbitration Proceedings. The claimants appealed to the Court of Appeal.

Judgment

The Court of Appeal’s decision addresses several legal issues involving arbitral challenges, including:

1. Jurisdiction under s.67 and s.68: Although the Court of Appeal agreed with Lord Neuberger’s explanation in BPP Holdings Ltd v. Revenue Customs Commissioners [2017] UKSC 55 that “an appellate judge should only interfere where the decision is not merely different from that which the appellate judge would have made, but is a decision which the appellate judge considers cannot be justified”, it held that the first instance judge had based his decision on a false premise. The High Court had failed to recognise that the claimants had a statutory right to challenge the consent award under s.67 and s.68 and that the respondents had agreed to this by submitting to arbitration with a seat in London. The court was responsible for determining such challenges as promptly as possible, Hashwani followed (Hashwani v OMV Maurice Energy Ltd [2015] EWCA Civ 1171).
2. Exercise of case management power / stay of proceedings: Compelling reasons are required for a stay of challenge applications under s.67 and s.68 on case management grounds and, given that the Second Arbitration Proceedings commenced by the respondents were a reaction to the court proceedings commenced by the claimants, it would be illogical to give precedence to them, unless there was a serious reason to do so.
3. Injunction: The first instance judge had failed to acknowledge that the Second Arbitration Proceedings:
   • Constituted a clear attempt to fetter the exercise of the claimants’ statutory right to challenge the consent award; and
   • Were vexatious and oppressive as they sought “in terrorem to impose a large financial penalty on the claimants for having sought to exercise their agreed legal rights”.

An injunction of the Second Arbitration Proceedings was therefore justified in order to ensure that the court would proceed to determine the validity of the consent award pursuant to s.67 and s.68.