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England: “unmeritorious” challenges to arbitral awards prompt rule change

The Commercial Court has changed its rules on challenging arbitral awards for serious irregularity under section 68 of the Arbitration Act 1996 in response to what it has described as “the substantial increase in the number of unmeritorious section 68 applications in recent years”.

English arbitration law provides for rights of challenge to an arbitral award that go significantly beyond the grounds for setting aside an arbitral award that are permitted in most other jurisdictions. 

Section 68 is concerned with procedural failings and not with errors of fact, law or jurisdiction.  An arbitral award can be challenged under section 68 if there has been a serious irregularity affecting the tribunal, the proceedings or the award, which has caused or will cause substantial injustice to the applicant.  The “substantial injustice” requirement is designed to eliminate unmeritorious applications, but an increase in such unmeritorious applications has prompted the Commercial Court to change its rules to allow them to be dismissed more easily in future.

The revisions to the Admiralty and Commercial Courts Guide, which were published on 28 March 2013, include a substantially expanded section on summary dismissal of section 68 applications.   In particular, a new rule O8.8 allows a respondent to a section 68 application to apply to have the application dealt with on paper.

Where the court makes an order dismissing the application without a hearing, the applicant will have the right to apply to the court to set aside the order and to have the application dealt with at an oral hearing.  However, the new rules also include a deterrent against doing so: if, at the hearing, the court upholds the dismissal of the application, the applicant will be at risk of an indemnity costs order. This amendment both reinforces the finality of arbitral awards and also provides a further consequence which a party must take into account when considering whether to launch a speculative section 68 challenge. It is to be hoped that the financial nature of this consequence will focus parties’ minds more effectively when that decision is being made.