International Commercial Arbitration Lecture 9: Challenging the Award By Feruza Bobokulova

Challenging the Award A party that has lost before an arbitral tribunal tries to challenge the award But, courts rarely overturn an arbitral award It is difficult to set aside an award because the binding and final nature of the award Nonetheless, there are steps that can be taken alleging the award was improperly made Awards cannot be challenged on the merits, but only on procedural grounds or grounds of arbitrator misconduct or bias

Methods of Challenge The most common method of challenge is to bring an action to annul, set aside, or vacate the award in the court at the situs of the arbitration, which is the appropriate place to challenge the award, because the court at the situs is considered to have supervisory jurisdiction over the arbitral process to ensure that it was conducted in a fair and noncorrupt manner The law that will govern the action will be thelex arbitri, or the curial law, which governs the arbitration proceedings at the situs

Methods of Challenge However, actions other than court challenges are available in particular kinds of arbitrations. In the maritime industry and in certain trade associations, for example, a challenge to an arbitration award may be brought to another arbitration panel or to a Board of Appeal Moreover, a party to an award under the ICSID Convention can only appeal to another ICSID arbitral tribunal. If the second panel annuls the original award, either party can request yet another tribunal to render an award

Methods of Challenge In most commercial arbitrations arising out of an international contract, however, any challenge to an award will be directed to a court A losing party can bring an action to set aside an award on procedural or public policy grounds If it loses in the local court, or if it does not bring an action to set aside, the losing party has still another opportunity to resist enforcement

Methods of Challenge It can oppose the prevailing party’s efforts to enforce the award in a different jurisdiction, where the losing party’s assets are located Thus, the losing party has two opportunities to challenge an award: first, in the court of the situs and, second, in the court where the prevailing party is attempting to enforce the award against the assets of the losing party

Grounds of Challenge Because arbitrations are meant to be final and binding, in most jurisdictions there is no right to appeal if the arbitrators made a mistake of law or of fact Rather, there are only a few grounds on which a party can base a motion to set aside the award The applicable law in the jurisdiction where the challenge is brought defines the grounds that can be used In most jurisdictions, the grounds for a challenge tend to fall into two broad categories: (1) jurisdictional and (2) procedural

Grounds of Challenge: Jurisdictional Jurisdictional challenges may be made to an award, but they are more usually made at the beginning of the arbitration, rather than after the award is rendered Under many laws, if a party does not challenge the jurisdiction at the beginning of the arbitration, it may lose the right to object Thus, if a party waits until the award is handed down before it objects to the tribunal’s jurisdiction, it may well have lost its opportunity to challenge

Grounds of Challenge: Jurisdictional On the other hand, if it has boycotted the proceedings completely, it may be permitted to make the challenge If it loses the challenge, however, the award will be enforced against it For that reason as well, it would be better to test the jurisdictional question at the beginning of the arbitration, and if the challenge fails, then participate in the arbitration A jurisdictional challenge to the award, however, may be based on a claim that the tribunal exceeded its powers

Grounds of Challenge: Jurisdictional A tribunal may have had jurisdiction under the arbitration agreement, but nonetheless rendered an award that it was not entitled to make. The award may also be challenged if the tribunal either fails to consider all of the issues before it, or if it decides certain issues that were not before it In some instances, if a court finds that the tribunal has exceeded its powers, the issues that were improperly decided may be severed, leaving the award as to other issues intact

Grounds of Challenge: Procedural Awards are most often challenged on procedural grounds Most arbitration laws provide that certain standards of due process must be met Under the UNCITRAL Model Law, for example, there are four grounds on which a party can base a challenge, all of which relate to some aspect of due process

Grounds of Challenge: Procedural They include (1) a party must not be under any incapacity, and the agreement must be valid; (2) a party must have been given proper notice of both the appointment of the arbitrator and the scheduling of the proceedings, and must have been able to present its case; (3) the subject matter has to be within the scope of the arbitration agreement; and (4) the arbitral tribunal must be constituted in accordance with the agreement of the parties

Grounds of Challenge: Procedural On each of these grounds, the party making the challenge bears the burden of proof Two other grounds may be raised and determined by the national court sua sponte: (1) whether the subject matter is arbitrable, and (2) whether the award conflicts with the public policy of the state

Grounds of Challenge: Procedural Public policy is defined differently in different jurisdictions, but in most, an award could be vacated if it was not consistent with fundamental notions of justice, honesty, and fairness Thus, corruption, fraud, or lack of integrity in the process could be considered a violation of public policy, requiring the award to be annulled. In most Model Law jurisdictions, fraud or corruption would probably be considered a proper ground for challenging an award as a violation of public policy

Grounds of Challenge: Based on Merits There are exceptions to the general rule in arbitration that the only grounds for challenging an award are based upon jurisdiction, procedural irregularities, arbitrability, or public policy These exceptions are found generally in common law legal systems In England, for example, a party may appeal an arbitral award on a point of law, unless the parties have agreed otherwise

Grounds of Challenge: Based on Merits This right of appeal, however, is subject to substantial limitations The appeal cannot be brought unless all the parties agree, or unless the court grants leave to appeal The court should only grant leave if the tribunal was obviously wrong on the point of law, or the question is of general public importance and the decision of the tribunal is open to doubt Moreover, case law has established that only a point of English law can be appealed

Time Limitations Challenges to an award must be brought promptly Failure to act within the time limitations may preclude the challenge Time periods range from twenty-eight days (England), or a month (France) to about six months (China) In the Model Law jurisdictions and in the United States, the period is three months The Model Law, however, arguably permits the court some discretion, since it provides that “an application for setting aside may not be made after three months [from receipt of the award].”

Effects of a Successful Challenge If the award was vacated because the court held that the arbitration agreement itself was invalid, then, assuming there is no time bar, the prevailing party should be able to initiate a court action If, however, the award is vacated because of some major procedural irregularity, the question is whether the case will be remitted to the arbitrators, and if so, whether it will be to the same tribunal, or to a different one

Effects of a Successful Challenge Courts are likely to favor some kind of remission, so that the parties will not have wasted the entire arbitration effort If the problem with the award can be resolved short of declaring it null and void, most courts will try to choose a solution that will not require the parties to start all over again

Reading Materials Redfern, A., Hunter, M., Blackaby, N., and Partasides, C., 2004. Law and Practice of International Commercial Arbitration, 4th edn. London: Sweet and Maxwell. Tweeddale, A. and Tweeddale, K., 2005. Arbitration of Commercial Disptues: International English Law and Practice. Oxford: Oxford University Press.

Thank You for your attention!