In Xstrata Coal v Benxi Iron & Steel ([2020] EWHC 324 (Comm))[1], the English High Court permitted a challenge made under section 68 of the Arbitration Act 1996 by the successful party in the arbitration on the basis that (as a result of uncertainty surrounding the parties to the arbitration agreement) there was ambiguity as to the award’s effect. The uncertainty was demonstrated by the refusal of a Chinese court to enforce the award on the basis that there was no contractual relationship between the defendant and one of the four claimants in whose favour the award had been rendered.
Background
Section 68 of the Arbitration Act 1996 (the “Act“) permits a party to arbitral proceedings to apply to the court to challenge an award on the grounds of “serious irregularity” affecting the tribunal, the proceedings or the award. Section 68(2) of the Act lists the types of irregularity that will cause substantial injustice to the applicant. The list includes, at Section 68(2)(f), “uncertainty or ambiguity as to the effect of the award“. Any challenge made under Section 68 must be brought within 28 days of the date of the award or within 28 days of the claimant being notified of the outcome of any “arbitral process of appeal or review” (Section 70(3) of the Act).
This Section 68 challenge was brought in respect of an award issued by an English-seated tribunal constituted under the arbitration rules of the London Court of International Arbitration (“LCIA“). The underlying dispute related to a contract for the sale of coal to the Defendant, Benxi by a consortium of four sellers (the Claimants). There was, however, some confusion as to the proper identity of the fourth seller in the consortium – while the sale contract identified the fourth seller as ICRA NCA Pty, a separate joint venture agreement between the consortium members identified it as ICRA OC Pty.
The LCIA arbitration was initiated by the consortium of sellers and ICRA NCA participated in the proceedings. The tribunal ultimately found in favour of the claimants and issued an award in their favour, ordering payment of some US$ 27.8m (plus interest) to be made by Benxi to the four Claimants i.e. including ICRA OC Pty (not ICRA NCA Pty). When the consortium subsequently sought to enforce the award against Benxi in China, they encountered difficulties. Benxi resisted recognition and enforcement before the Shenyang Intermediate People’s Court, which ultimately found that, in light of the fact that ICRA NCA Pty was the entity named in the sale contract, there was no contractual relationship between ICRA OC Pty and Benxi and thus the arbitration agreement did not exist. It held that ICRA OC Pty could not be deemed a claimant in the arbitration, that the award was thus without merit and refused to recognise and enforce it on this basis.
The Claimants brought the challenge before the High Court on the basis that there was uncertainty to the award’s effect that had, in light of the Chinese court’s refusal to enforce, caused them substantial injustice.
Decision
Interestingly, prior to bringing the Section 68 challenge, the claimants had applied to the tribunal under Article 27 of the LCIA Rules, which permits correction in the award of “any error in computation, any clerical or typographical error, any ambiguity or any mistake of a similar nature“. In this case, the tribunal refused to exercise its discretion to ‘correct’ the ambiguity as to the identity of the fourth seller. It considered that this would require an additional finding of fact to be made, on issues which had not been properly put to or addressed by the tribunal in the course of the proceedings, and that this would require going beyond the corrective remit of the Article 27 ‘slip’ rule.
The making of the Article 27 application was nonetheless relevant to the question of whether or not the Section 68 challenge had been brought in time. The court did not accept that the Article 27 application constituted an “arbitral process of appeal or review” within the meaning of Section 70(3) but did agree that, in this case, the 28 days for bringing the challenge should run from the date on which the outcome of the “material” application for correction was notified. Accordingly, it found that the Claimants’ application had been made in time.
The court then proceeded to consider the merits of the Section 68 challenge and whether there was a serious irregularity in the award. It was satisfied that there was real uncertainty and ambiguity as to the effect of the tribunal’s award, both as to whether ICRA OC Pty was a proper party to the contract and thus entitled to enforce the award in its favour and as to whether Benxi had waived its right to object to ICRA OC Pty’s claim. The court was not persuaded by the defendant’s argument that because the effect of the award could be easily ascertained as a matter of English law, this meant that there was no uncertainty or ambiguity as alleged. It found that the uncertainty was clearly evidenced by the Chinese court’s refusal to enforce the award.
The court was also satisfied that there was risk of substantial injustice to the Claimants, in light of the pre-existing enforcement difficulties in China and the possibility of similar issues if the Claimants sought to enforce the award in other jurisdictions.
The Section 68 application was granted and the award was remitted to the tribunal.
Comments
It is notable that in its judgment, the court rejected an argument that Section 68 challenges may only be brought where a tribunal has seriously erred in the conduct of an arbitration, and observed that Section 68(2)(f) may be invoked in cases where there on no fault on the part of the tribunal. The court’s decision is consistent with the pro-enforcement approach generally adopted in England, and is helpful in that it confirms that Section 68 challenges may succeed where an award is capable of being misunderstood by a foreign court (regardless of whether the position is clear as a matter of English law).
The court’s helpful, and pragmatic, clarification on when the clock starts to run for Section 68 applications to challenge an award is also to be welcomed. Time will run from the date of notification of the outcome of any corrections application and not from the original date of the award (notwithstanding that no correction is in fact made pursuant to such application). The court noted that if the rule were otherwise, the floodgates would open to parties making precautionary (but potentially unnecessary and generally undesirable) applications under Section 68 pending the outcome of any corrections applications.
[1] Xstrata Coal Queensland Pty Ltd (Company 098156702) [now known as Rolleston Coal Holding Pty Ltd] v Benxi Iron & Steel (Group) International Economic & Trading Co Ltd. ([2020] EWHC 324 (Comm)).
