Download Grounds of Challenge: Procedural

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.
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