Michael Ostrove, James Carter and Ben Sanderson, DLA Piper
This is an extract from the first edition of GAR’s The Guide to Challenging and Enforcing Arbitration Awards. The whole publication is available here.
Set-aside – general principles
The setting aside of an award is envisaged in Article V of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). However, the New York Convention is primarily concerned with the second option listed above – namely the grounds on which signatory states may refuse to recognise or enforce an award rendered in another signatory state. One of the grounds provided is that a signatory state may refuse to recognise or enforce an award that has ‘been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made’. However, the New York Convention does not prescribe the circumstances in which an award may be so ‘set aside or suspended’.
The grounds on which an arbitral award may be set aside can be found in national legislation particular to each jurisdiction. The silence of the New York Convention might have led to major differences between the international arbitration legislation of different jurisdictions. In reality, however, national arbitration laws tend to provide for similar grounds. Some 159 states are party to the New York Convention, and the grounds on which it permits signatory states to refuse recognition or enforcement (or both) of an award have also come to form the basis of the grounds for set-aside in the vast majority of national arbitration laws.
Quite apart from a simple state-by-state decision to ensure consistency between grounds for set-aside and for refusing enforcement, a key reason for this uniformity is the UNCITRAL Model Law on International Commercial Arbitration (the Model Law), which was promulgated in 1985 and amended in 2006. The Model Law was designed to assist states in modernising and reforming their laws on arbitration procedure and has been adopted by many jurisdictions as the basis for their domestic arbitration laws. In setting out the grounds on which an award may be set aside, the Model Law lifts the wording almost verbatim from Article V of the New York Convention. The enthusiasm of those responsible for drafting the Model Law to ensure that it aligned with the terms of the New York Convention has been well documented elsewhere, and the benefits of an internationally harmonious framework governing the grounds on which awards could be challenged are self-evident. The Model Law has been hugely influential. To date, it (or legislation based on it) has been adopted in 111 jurisdictions, including major hubs of international arbitration such as Hong Kong and Singapore.
Commonly available grounds for set-aside
The Model Law provides that an award may be set aside on the following six grounds:
- a party to the arbitration agreement pursuant to which an award was rendered did not have the capacity to enter into the agreement, or the agreement is not valid under the applicable law;
- a party was not given proper notice of an arbitrator being appointed or of the proceedings, or was otherwise denied the opportunity to present its case;
- the award deals with a dispute not contemplated by or not falling within the submission to arbitration;
- the composition of the arbitral tribunal or the arbitral procedure was other than as prescribed by any lawful agreement between the parties;
Given the effectiveness of the Model Law in unifying the legal framework for international arbitration, it is perhaps surprising to note that a number of non-Model Law jurisdictions are widely recognised as being some of the most arbitration friendly. For example, France, England and Wales, and the United States all elected not to adopt the Model Law. However, despite their status as non-Model Law jurisdictions, and despite the drafting differences found in their national arbitration laws, these jurisdictions nonetheless all make provision for essentially the same grounds for set-aside as are found in the Model Law. By way of example, the French Code of Civil Procedure permits awards to be set aside in cases where:
- the arbitral tribunal has wrongfully accepted or declined jurisdiction in relation to the dispute;
- the composition of the arbitral tribunal was irregular;
- the arbitral tribunal has not respected the limits of its mission;
- there has been a lack of due process, or a party has been denied the right to a fair hearing; or
The grounds provided for by French legislation pursuant to which an award may be set aside are substantially the same as those in the Model Law, other than the fact that the first ground cited above essentially combines the two grounds found in Article 34(2)(a)(i) and 34(2)(b)(i) of the Model Law. Additionally, the French legislation refers to ‘international public policy’.
Set out below are examples of challenges that may be brought under the commonly available grounds for set-aside, whether in Model Law or leading non-Model Law jurisdictions. The examples are not intended to serve as an exhaustive list of the situations in which an application for set-aside might be brought, but rather to demonstrate the kinds of challenge that may be considered. It is important to bear in mind, however, that, notwithstanding the steps taken towards establishing uniform international rules to ensure the validity and finality of arbitral awards, there remain a myriad of subtleties that distinguish the applicable legislation applicable across the globe. As such, local law advice should always be sought when making or responding to an application for set-aside.
Incapacity of a party or invalidity of the arbitration agreement
Incapacity of a party or invalidity of the arbitration agreement is a ground commonly invoked when a party seeks to argue, inter alia, that an arbitration agreement was never concluded between the parties. While an arbitration agreement will survive a contract that otherwise ceases to bind the parties (further to which, see below), an arbitration agreement that never comes into effect will not be able to bind the parties. This was the argument before the English High Court in A v. B. The claimant (A) made an application to set aside an award rendered by a tribunal of the International Cotton Association pursuant to Section 67 of the Arbitration Act 1996. The claimant’s case was that the tribunal that had rendered the award lacked the requisite jurisdiction because the claimant had never entered into an agreement with the defendant (B) providing for the resolution of disputes by arbitration.
The validity or otherwise of an arbitration agreement will not necessarily depend on whether the broader agreement remains in force. This concept is referred to as the ‘separability’ of the arbitration clause. As the authors of Redfern and Hunter on International Arbitration observe, it would be ‘entirely self-defeating’ were an arbitration clause to lose its force concurrently with the wider agreement as the point when a contract breaks down is when arbitration is most needed.
Party not given notice or denied the opportunity to present its case
The provision in Article 34(2)(a)(ii) of the Model Law that an award may be set aside if a party ‘was otherwise unable to present his case’ is reflected in the French Code of Civil Procedure’s ground that ‘the tribunal did not respect due process’.[19] In October 2018, the Hong Kong Court of First Instance similarly held that the opportunity for a party both to present its case and to deal with an opponent’s case is a ‘fundamental rule of natural justice’.
Award dealing with matters outside the submission to arbitration
This ground would include claims that a tribunal’s decision has gone beyond what the parties agreed should fall within the scope of the arbitration. The Model Law makes express provision for the preservation of those parts of an award that are ‘within’ the scope of a tribunal’s jurisdiction when other parts are set aside. This demonstrates the drafters’ intentions to disturb the finality of awards as little as possible. Wording to similar effect is also found in the English Arbitration Act 1996, Section 67 of which provides that the court may, on finding that the tribunal lacked substantive jurisdiction, ‘set aside the award in whole or in part’.
Composition of the arbitral tribunal
The Model Law provides for an award to be set aside if ‘the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties’. The foundation of this ground is respect for the parties’ agreement. However, Article 34(2)(a)(iv) includes a caveat. If the parties’ agreement is in conflict with a provision of the Model Law from which the parties cannot derogate, deviating from that agreement will not be a ground to set aside the award. For example, Article 18 of the Model Law imposes an absolute requirement that the parties shall be treated equally and given a full opportunity to present their case. Were the parties to an arbitration governed by the Model Law to agree to a procedure that did not comply with this requirement, deviation from that agreement would not constitute a ground on which the award could be set aside.
In England and Wales, a challenge on the basis that the tribunal was improperly constituted falls within Article 67 of the Arbitration Act 1996 (as a challenge to the tribunal’s substantive jurisdiction). The Court of Appeal has said that where there is a procedure for the appointment of arbitrators, a ‘substantial failure to comply with that procedure should have an effect on the jurisdiction of the tribunal itself’. Cases in which the non-compliance was inconsequential or was waived may serve as an exception to this general rule.
Inarbitrability of the underlying dispute
The Model Law states that an award may be set aside if the courts of the arbitral seat determine that ‘the subject matter of the dispute is not capable of settlement by arbitration under the law [of that state]’. Traditionally, discussions of inarbitrability arose in the context of disputes over which the jurisdiction of the courts was argued to be inalienable either by operation of law or in the public interest. The English Court of Appeal held in Fulham Football Club that ‘even the most widely drafted arbitration agreement will have to yield to restrictions derived from other areas of the law’. However, this was in the context of whether to grant a stay of court proceedings in favour of arbitration. Applying the principles in Fulham Football Club, the English Court of Appeal has held that ‘the fact that an arbitrator cannot give all the remedies which a Court could give does not afford any reason for treating an arbitration agreement as of no effect’. The reasoning of the English courts is in line with an international trend towards increasing the scope of those disputes that can be resolved by arbitration.
The interplay between questions of arbitrability and public policy is unavoidable. Indeed, it is in large part by virtue of their effect on matters of public policy that certain categories of dispute have historically been held not to be arbitrable. This is increasingly becoming less of an issue, with disputes raising matters such as competition law and those in which bribery and corruption are alleged being expressly held to be arbitrable and awards treating these subjects being enforced without reopening the factual argument in multiple jurisdictions.
Award contrary to public policy
An award that is contrary to the public policy of the state in which an application for set-aside is being heard (as is the case in Model Law jurisdictions and England and Wales) or to international public policy of that state (as is the case under the French Code of Civil Procedure) may be set aside. Awards that contravene public policy may differ from jurisdiction to jurisdiction, but questions of public policy commonly arise where challenges involve allegations that the award has been obtained by fraud.
The international arbitration community has long been concerned that the vagueness of the term ‘public policy’ gives states the ability to set aside awards on regionally particular, and perhaps unexpected, grounds when it suits them to do so. Under the arbitration legislation of Saudi Arabia, for example, the public policy ground is worded more broadly than in the Model Law on which the legislation is based. It provides for setting aside on the ground that the award ‘violates the provisions of Sharia and public policy’.
In Poland, public policy is a ground for setting aside an award that ‘is contrary to the fundamental principles of the legal order of the Republic of Poland’. This has been held by the Polish Supreme Court to include a situation amounting in essence to the erroneous interpretation by an arbitral tribunal of a contract, albeit where the consequence of said misinterpretation was a violation of a party’s property rights. Despite expressly acknowledging the need to interpret the public policy ground narrowly, the Polish courts have shown their willingness to engage in an ‘extensive review’ of arbitral awards when they deem it necessary to do so.
Less commonly available grounds for set-aside
Challenge on a point of law
As a general rule, the ability to appeal on a point of law is anathema to international arbitration and undermines the principle of finality of the award. However, the English Arbitration Act 1996 goes beyond the provisions of the Model Law and offers parties, by way of an application pursuant to Section 69 of the Arbitration Act 1996, the right to challenge an award on a point of law. Unlike Sections 67 and 68 of the Arbitration Act 1996 (which address the more commonly available grounds for set-aside), the parties to an arbitration agreement are free to contract out of the provisions of Section 69. Recourse to a challenge on a point of law is further limited by the fact that, absent the agreement of the parties, the party challenging the award will require the court’s permission to bring an application under Section 69. This will be given only in circumstances where the court is satisfied that (1) the determination of the question will substantially affect the rights of one or more of the parties; (2) the question is one that the tribunal was asked to determine; (3) on the basis of the findings of fact in the award, (a) the decision of the tribunal is obviously wrong, or (b) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt; and (4) 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. The most recent statistics issued by the English Commercial Court underscore the very high threshold imposed by the English courts: in 2016, 46 applications for leave to appeal were made but none was granted. In 2015, 60 applications were made, of which 20 were granted. However, ultimately only four of those appeals were successful.
Challenge on a point of law has also been the subject of intense debate in the United States in the guise of the ‘manifest disregard’ doctrine. Following the decision in Hall Street Associates LLC v. Mattel Inc, US courts have been split as to whether it remains possible to set aside an award where a tribunal manifestly disregards the law. The grounds on which an award rendered in the United States may be set aside are set out in Section 10(a) of the Federal Arbitration Act, which contains no explicit reference to manifest disregard of the law. The origins of the doctrine can be traced back to the decision in Wilko v. Swan, in which the Supreme Court appeared to imply that while interpretations of law by an arbitral tribunal will not be subject to review by the courts, their manifest disregard of the law might be.
The perceived risk that an arbitral award rendered by a United States-seated tribunal could be vulnerable to review by the courts has been a concern to members of the international arbitration community for some time.
Formality
One area in which the expertise of local counsel may often prove invaluable is in the appreciation of local requirements pertaining to procedural formality in the context of international arbitration. In certain jurisdictions, including the United Arab Emirates, the public policy ground has been interpreted broadly so as to encapsulate a failure to comply with local procedural requirements. By way of example, the Dubai Court of Cassation has refused to enforce an award rendered overseas on the basis that the tribunal failed to require that witnesses giving evidence swear an oath in the manner required in proceedings before the courts of the United Arab Emirates. Conversely, in the context of a set-aside decision, the Abu Dhabi Court of Cassation dismissed an application made on the same basis, reasoning that although unsworn witness testimony is void, where it was not relied upon by the tribunal, the award would be allowed to stand. Further decisions of the courts of the United Arab Emirates have indicated that, in certain circumstances, an arbitrator’s failure to sign each page of the award could render the award unenforceable.
Courts’ attitude to challenge
Regardless of the ground on which set-aside is sought, in the face of challenges to an award, many countries demonstrate what is widely referred to as ‘a pro-arbitration bias’. One recent analysis concluded that the courts of England and Wales, France, Singapore and the United States are relatively unlikely to set aside arbitral awards and that awards subject to those jurisdictions’ oversight are most likely to be final and binding as a consequence.
The persistence of this position in England and Wales (specifically in relation to challenges under Sections 68 and 69 of the Arbitration Act 1996) was reiterated in 2018 by the release of statistics by the English Commercial Court. These revealed that of the 47 set-aside applications brought under Section 68 between 1 January 2017 and 13 March 2018, none was successful.
Losing the right to apply for set-aside
Time limits
States have tended to impose strict time limits during which parties may apply for an arbitral award to be set aside. In the Model Law, for example, the time in which a party may apply to set aside an award is limited to three months from its receipt. Legislators in France have adopted a comparatively less generous approach with the Code of Civil Procedure, permitting parties to issue a challenge only within one month of notification of the award. Parties considering an application for set-aside should therefore act promptly following publication of an award (or, at least in France, formal notification) to avoid missing out on an opportunity to challenge it.
Waiver
Parties should be alive to the risk that they may waive their right to apply to the courts for set-aside in circumstances where they do not first raise their concerns with the arbitral tribunal. To some, the risk of inadvertently waiving the right to apply to set aside an award will undoubtedly be of concern. To others, the finality and certainty represented by arbitration might be bolstered further were it possible for parties to contract out of the right to seek set-aside. In certain jurisdictions it has relatively recently become possible for parties to do just that and exclude the jurisdiction of the courts to set aside an arbitral award. The French Code of Civil Procedure, for instance, was amended in 2011 to permit parties in international cases to ‘expressly waive their right to bring an action to set aside’. The Organization for the Harmonization of Business Law in Africa’s (OHADA) Uniform Act on Arbitration Law was similarly amended, effective in 2018, to permit such a waiver. Conversely, in England and Wales, parties cannot contract out of Sections 67 and 68 of the Arbitration Act 1996. Even under the more permissive French regime, parties should be aware that agreeing to waive their rights to apply for set-aside will not prevent them resisting recognition or enforcement of the award on the same grounds as are available for set-aside.
Certain national legislation may restrict parties’ rights to seek to have an award set aside subject to their satisfaction of certain thresholds. By way of example, the courts of England and Wales require a party to exhaust any available arbitral process of appeal or review and any available recourse under Section 57 of the Arbitration Act 1996 for the correction of an award or rendering of an additional award before any application for set-aside may be brought. The rules of any relevant arbitral institution would need to be considered in this regard as many of these include provisions for correction of awards, additional awards or, in rare circumstances, appeal of the award.
To some extent, these intra-arbitral methods of redress can be considered methods for the challenge of an award (or part of an award) in their own right. As failure to pursue these potential alternatives may result in a party waiving its right to apply for an award to be set aside, in the interest of completeness, we now address the more commonly available methods.
Correction
Article 33(1)(a) and (2) of the Model Law prescribe a narrow set of circumstances in which it is open to a tribunal, either at the request of a party or of its own volition, to correct errors in the award, including ‘errors in computation, any clerical or typographical errors or any errors of similar nature’. It is common for national arbitration legislation to broadly follow the provisions of the Model Law in allowing for arbitral tribunals to make corrections to their awards in narrow circumstances. Section 57(3)(a) of the English Arbitration Act 1996 permits arbitral tribunals to ‘correct an award so as to remove any clerical mistake or error arising from an accidental slip or omission’.
The UNCITRAL Rules and the arbitration rules of numerous leading international institutions contain provisions addressing the ability of arbitral tribunals to correct their awards. The rules of UNCITRAL, ICC, LCIA, HKIAC and SIAC, for example, broadly follow the template of the Model Law in relation to the correction of awards in as much as they permit arbitral tribunals to correct clerical, computational, typographical or similar errors.
Interpretation
If the parties have agreed to permit interpretation by the arbitral tribunal, Article 33(1)(b) of the Model Law permits interpretation ‘of a specific point or part of the award’. The arbitral tribunal is permitted to make such an interpretation at the request of either party. Section 57(3)(a) of the English Arbitration Act 1996 empowers arbitral tribunals to ‘clarify or remove any ambiguity in the award’. While this Section does not specifically reference interpretation, the High Court of England and Wales has found that arbitrators are obliged to ‘consider all possible accidental slips, omissions or ambiguities in the award’ once asked to correct an award.
As with correction, the UNCITRAL Rules and the rules of most leading institutions follow, to a large degree, the provisions of the Model Law in relation to interpretation of awards. The rules of UNCITRAL, ICC, HKIAC and SIAC expressly envisage interpretation of awards by arbitral tribunals. The rules of the LCIA, meanwhile, like the Arbitration Act 1996, permit arbitral tribunals ‘to correct in the award . . . any ambiguity’.
Additional award
Article 33(3) of the Model Law provides that, subject to the parties having agreed otherwise, the arbitral tribunal may, at the request of one or other of the parties, ‘make an additional award as to claims presented in the arbitral proceedings but omitted from the award’. Section 57(3)(b) of the English Arbitration Act 1996 follows the Model Law by permitting arbitral tribunals (subject to the terms of the agreement between the parties) to ‘make an additional award in respect of any claim . . . which was presented to the tribunal but was not dealt with in the award’.
The UNCITRAL Rules and the arbitration rules of many leading international institutions largely follow the Model Law as regards tribunals’ power to make additional awards. The UNCITRAL Rules and the rules of the LCIA, HKIAC and SIAC permit tribunals to make additional awards at the request of a party in respect of claims presented to, but not decided by, the arbitral tribunal.
Concluding remarks
The grounds for challenging awards are relatively narrow and prescriptive, and there is remarkable harmonisation of the law around the world in this respect. Courts in the leading centres of international arbitration are particularly conservative in their interpretation of these grounds, reflecting a broad consensus as to the merits of arbitral awards being final.
While parties who have lost an arbitration and consider that the tribunal misjudged the facts, or the law may be frustrated that an award cannot be challenged as easily as a court judgment could be appealed, systemically this frustration is outweighed by the benefit and attractiveness of an international arbitration award being final, at least in most cases. So long as that finality is protected by national courts, it will continue to be an important reason for parties to continue to choose arbitration as their preferred dispute resolution mechanism.
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