REUTERS | Navesh Chitrakar

Challenging an arbitrator’s award is hard to do

If you have agreed in your construction contract that any dispute will be referred to arbitration, rather than the courts, the arbitrator’s decision has to be seriously wrong before the court will “interfere” and give leave to appeal the award. Despite this, cases involving appeals from an arbitrator’s award on a point of law under section 69 of the Arbitration Act 1996 seem to be flavour of the month.

In HMV v Propinvest (not yet reported), the Court of Appeal considered the question of appeals under s.69(3)(c)(i), which provides that leave to appeal on a point of law shall be given only if the court is satisfied that, on the basis of the findings of fact in the award, the decision of the tribunal on the question of law is obviously wrong.

Background

HMV leased premises from Propinvest. The lease provided for a rent review every five years. The parties got into a dispute about the amount of the rent payable from March 2005 and agreed to settle the dispute via arbitration. One of the questions they asked the arbitrator to settle concerned the requirement for a secondary fire escape and how this should affect the rent review. HMV appealed against the arbitrator’s decision but was initially refused permission to appeal. It appealed against this refusal.

The right to appeal under section 69 will not be given lightly

In dismissing the appeal, the Court of Appeal demonstrated that satisfying section 69(3)( c)(i) – showing that the arbitrator’s decision on the question of law is “obviously wrong” – is a high threshold. The word “obviously” in the Arbitration Act 1996 is a clear guide to how strict the court’s approach will be. The judges emphasised that it must be clear that the arbitrator was obviously wrong, so obviously as to be classified as a major intellectual aberration. The error should be obvious from the award itself, without the need to go into any other background or information. If the arbitrator might be right, leave should be refused.

Arbitrator’s experience and expertise

In assessing whether or not the arbitrator had made an error of law, the judges took the arbitrator’s experience into account.  Just as the parties to a construction contract often agree to appoint a specialist construction and engineering arbitrator, in HMV it was relevant that the arbitrator was a specialist in landlord and tenant law and rent review clauses. The parties had selected him on the basis of this expertise.

Just and proper test

Since the judges found that the arbitrator had not made an error of law, it was not necessary for them to decide whether or not HMV had satisfied the requirements of section 69(3)(d), namely “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.”

The judges indicated that HMV would not have overcome this hurdle even if it had succeeded in showing that the arbitrator had made an error in law. It seems that the fact that the parties had selected the arbitrator was one of the factors they took into account.

English courts tend to respect the parties’ choice and the arbitrators’ expertise

In Micoperi SrL v the Shipowners’ Mutual Protection & Indemnity Association Burton J reminds us that:

“in order for there to be a successful appeal against an Arbitration Award, there must be an error of law, and not an error of fact, however egregious.”

He had given leave to appeal the arbitral award as it was sufficiently arguable that the tribunal had made an error of law. However, once he had heard the parties’ full arguments on appeal, he was satisfied that no error of law had been made. He commented:

“The matter has now been fully argued, and, as is so often the case in an arbitration appeal dependent upon a short analysis of the arbitrators’ reasons and without nitpicking examination of them, the answer is clear.”

In other words, if you look at the arbitrators’ reasons properly, you’ll usually find that they’ve got it right.

Pacific Basin IHX Ltd v Bulkhandling Handymax AS is a case where the judge found that the arbitrators had made an error of law. Nonetheless, the judge did not overturn the award. Instead he stated that he was minded to order that the award be remitted to the arbitrators for reconsideration (counsel for both parties had indicated that they would make further submissions as to the appropriate order once they had studied the judgment so the judge made no order then and there).

Section 69(7) provides that the court shall not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.

The appeal process should be followed strictly

In Parbulk Ii A/S v Heritage Maritime Ltd SA the judge rejected the arguments that the tribunal had erred on various points of law, albeit that on one of the issues he came to the same conclusion as the tribunal but for different reasons. Along the way he made some remarks about the process of appealing on a point of law, noting that it is not enough to refer vaguely to “errors of law” – a proper identification of the specific questions of law should be made.

He also noted that the time limits imposed by the Arbitration Act 1996 and CPR 62 should be strictly enforced and only extended in very exceptional circumstances.

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