Serious irregularity—time for a change?

Serious irregularity—time for a change?

When challenging an arbitral award for serious irregularity one principle is clear: the remedy is only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for the wrong to be corrected. Despite this high threshold to success, which has been confirmed at the highest judicial level (Lesotho [2006] 1 AC 221), unfounded challenges pursuant to section 68 of the Arbitration Act 1998 (AA 1996) continue to be mounted, resulting in wasted court resources and, in some cases, indemnity costs awards against the unsuccessful challengers.

Another failed challenge

This issue has been brought back into sharp focus by Mr Justice Cooke’s recent decision in Konkola v U&M Mining ([2014] EWHC 2374 (Comm)), where he roundly dismissed the claimant’s challenges to a LCIA tribunal award for serious irregularity and lack of substantive jurisdiction (AA 1997, s 67).

In brief, Konkola alleged that one of three awards issued in consolidated arbitration proceedings between the parties should be remitted to the tribunal on the basis that the conduct of the proceedings was vitiated by serious irregularity (pursuant to AA 1996, s 68(2)(a), (b) and (c)) which caused Konkola substantial injustice. The challenge centred on a hearing that took place on 9 December 2013 without Konkola’s involvement, save for requesting an adjournment, which led to the award being issued in U&M Mining’s favour (the conditional form of which was also challenged by the claimant, but that interesting element of the decision is not the subject of this post).

Cooke J dismissed the challenge on all fronts, finding that Konkola was given ample opportunity to respond to the various applications determined by the tribunal following the hearing and the decision not to adjourn was ‘beyond criticism’.

However, the most interesting aspect of the judgment was the judge’s ‘finale’.

The finale—a rallying call for change?

In his 'finale' Cooke J stated that the vast majority of serious irregularity challenges before the English Commercial Court are 'unfounded' and occupy too much court time because, although there is a summary power available to dismiss them, detailed investigation is often required in order to properly consider such challenges, which renders the summary process unworkable in practice.

The summary power is contained in para O8.8 of the Admiralty and Commercial Courts Guide (which also applies to arbitration claims in the TCC), under which the court can dismiss a serious irregularity challenge without a hearing if the nature of the challenge or the evidence filed in support of it leads the court to consider that the claim has no real prospect of success.

What needs to be done?

The judge in Konkola was clear that the summary power is not proving an effective filter of unfounded challenges due to the complexity of the task faced by a judge when determining a serious irregularity challenge. But what can be done to relieve this burden?

Perhaps we need a shift of emphasis, with a heavier burden of responsibility being imposed on counsel and solicitors before they advance serious irregularity challenges. The Bar Standards Board Handbook provides that counsel must not draft any statement of case, witness statement, etc, containing any allegation of fraud, unless they have clear instructions to allege fraud and they have reasonably credible material which establishes an arguable case of fraud. Maybe an equivalent obligation should be imposed in the arbitration context in order to reinforce the court’s pro-arbitration stance and to deter parties and their lawyers from advancing serious irregularity challenges that are, in essence, masquerading failed appeals on point of law or backdoor challenges to factual determinations.

Alternatively, clear, comprehensive guidance could be provided to better equip the judiciary to decide when use of the summary procedure is appropriate, so that the power is exercised with increased frequency and fewer cases proceed to a full hearing, most of which end in the application being dismissed. There is also an argument for the use of dedicated, specialist ‘arbitration’ judges to evaluate the challenges and assess their prospects of success, which may also lessen the burden faced by the judiciary.

In my view, the focus, at least for now, should be on providing specialist members of the judiciary with better guidance as to when the summary procedure should be used and judges should be encouraged to criticise, and sanction, parties and their lawyers in appropriate cases for mounting challenges that turn out to be unfounded.

Some concluding remarks

When faced with a client's unfavourable arbitral award, a practitioner will weigh the delicate balance between pursuing a challenge in the face of clear and persistent statements from the court that it is unlikely to succeed, and which may result in costs being awarded against a client on an indemnity basis (which Cooke J thought was justified in Konkola), and seeking to act in a client's best interests. In the absence of further guidance from the court, arbitration practitioners should make it very clear to their clients that challenges are rarely successful, that there is a high risk of failure, and that there is a possibility of indemnity costs being awarded against the client should they pursue a challenge and fail.

Lexis®PSL Arbitration customers can find a full analysis of the Konkola decisionClick here for a free trial of Lexis®PSL.


Related Articles:
Latest Articles:
About the author:

Barry specialises in international arbitration and commercial litigation. He trained and practised at Jones Day before joining Pinsent Masons. At LexisNexis, Barry is Head of Arbitration and Head of the Lexis®PSL Dispute Resolution Group.

In practice, Barry’s work included commercial, aviation and technology arbitrations pursuant to international arbitral rules, involving UK and international clients. He also has a background in general commercial, civil fraud and IT litigation, including experience before the High Court. While in private practice, Barry worked with a broad range of clients from the private and public sectors.

At LexisNexis, when not focused on the strategic development and operational requirements of the Dispute Resolution Group, Barry’s content work focuses on the law and practice of international commercial arbitration and investment treaty arbitration. In addition to his work for Lexis®PSL, Barry contributes to the LexisNexis Dispute Resolution Blog and New Law Journal on litigation and arbitration matters