Dealing with hopeless Section 68 applications: all working well … or time to get tougher?- Simon Rainey QC

Mon, 17 December, 2018

Two recent decisions of the Commercial Court shed different lights on the Commercial Court’s policy of weeding out hopeless section 68 applications at an early stage and merit close attention: see the decisions in Asset Management Corporation of Nigeria v Qatar National Bank [2018] EWHC 2218 (Comm) decided in July but published only recently, and Midnight Marine Ltd v Thomas Miller Speciality Underwriting Agency Ltd [2018] EWHC 3431 (Comm), handed down on 12th December 2018.

The Problem: the Abuse of Section 68

Under section 68 of the Arbitration Act 1996, a right to challenge an award lies in a range of narrowly defined situations which have been summarised as dealing with the case where something has gone “badly wrong” with the due process in relation to the conduct of the arbitration or the rendering of the award. The applicant must establish a serious irregularity of a type falling within one or more of the sub-paragraphs under section 68(1) and, in addition, that that irregularity has caused substantial injustice. The Court’s jurisdiction is to be exercised only “in extreme cases”.

Given, however, the restricted right to challenge an award on its merits, which is confined to errors on questions of law which can get through the eye of the section 69 needle, parties frequently resort to dressing up a case, which is in reality a challenge to the substance of what the tribunal has decided, as a section 68 challenge for serious irregularity in the conduct of the arbitration. A common guise adopted for this is the argument mounted under s 68(2)(d) of the 1996 Arbitration Act, that the tribunal has failed to deal with all the issues that were put to it, which has resulted in the party suffering substantial injustice. (See e.g. Orascom TMT Investments v. Veon Ltd [2018] EWHC 985 (Comm) and Reliance Industries Limited v. The Union of India [2018] EWHC 822 (Comm).)

The Solution: Paragraph O8.5 of the Commercial Court Guide

The Commercial Court has previously referred to the large number of section 68 applications made and to the fact that the great majority of these are obviously unsustainable. The Court has adopted a summary procedure for hopeless applications. Paragraph O8.5 of the Commercial Court Guide provides that “If the nature of the challenge itself or the evidence filed in support of it leads the Court to consider that the claim has no real prospect of success, the Court may exercise its powers under rule 3.3(4) and/or rule 23.8(c) to dismiss the application without a hearing.” In practice, the application is responded to briefly by the respondent, by “a respondent’s notice to that effect together with a skeleton argument (not exceeding 15 pages) and any evidence relied upon”), the applicant answers this in writing and the Court may dismiss the application on the papers.

As the first of the recent decisions has noted, “There is no reason why the court should not exercise its powers for summary dismissal on paper where the appropriate test is met and over the years the court has tended to do so more and more in the light of the raft of unmeritorious applications that are made under section 68” (: see Asset Management Corporation of Nigeria v Qatar National Bank [2018] EWHC 2218 (Comm), per Sir Jeremy Cooke at [38]).

So far, so good.

But where the Court makes an order dismissing the application without a hearing, the applicant has the right under Paragraph O8.5 to apply to the Court to set aside the order and to seek directions for on oral hearing of its section 68 application.

It is here that problems can potentially arise. It is difficult to gauge how often this right is sought to be exercised. In Asset Management, Sir Jeremy Cooke (with many years of first-hand experience in the Commercial Court) noted that “For the most part, where such an application was summarily dismissed, my experience was that they were infrequently pursued” [38].

The Remaining Problem … a Full Re-run at an Oral Hearing?

But exercised that right certainly is, at least by certain applicants. The problem is then whether, having had the application thrown out on paper as unarguable, the applicant is nevertheless still able to have what virtually amounts to a full section 68 hearing, almost invariably with the same result of testy dismissal, but only after all the costs and inconvenience of a full hearing.

The two recent decisions illustrate considerable differences of approach by Commercial Court judges to this problem and suggest that practitioners can certainly expect some further changes or clarifications of Paragraph O8.5 when the Commercial Court Guide undergoes its next revision.

(1) In Asset Management v Qatar National Bank, a hopeless section 68 application based on section 68(1)(d) and “issues” allegedly not dealt with but which plainly had been addressed by the tribunal, Carr J. dismissed the application on paper. Asset Management renewed its application and sought an oral hearing. It failed, the application being described as “wholly without merit”. Looking at the judgment, the application appears to have been almost fully argued out as if a ordinary section 68 application.

Sir Jeremy Cooke emphasised that there was, in his view, a real and important role for the oral hearing.

While he recognised that the Court could refuse an oral hearing, notwithstanding O8.5, this would only occur in exceptional cases, i.e. “unless the underlying application was seen as something akin to vexatious”. Otherwise, the “usual” course was to proceed to an oral hearing. The Judge did not define the nature of that hearing but from what Sir Jeremy states, it is clear that he was envisaging a fully contested hearing and that he considered that this gave the Court an important cross-check. At [41], he extolled the benefits and essential justice of this type of oral hearing as he saw them:

“ […] my understanding of the general practice is that where a hearing is sought by party, it would usually be granted by the court. This is because the Court ordinarily proceeds by way of oral hearing so that parties’ positions can be advanced and tested in a manner not always so readily achieved on paper. Questions can be asked and answered which may throw a different light on matters. There is always the possibility of the Court misunderstanding the position without such an opportunity and the English Court tradition has always been one of oral argument and presentation. The exchange between counsel and judge in probing questions and receiving answers is beneficial to the administration of justice.”

(2) In Midnight Marine v Thomas Miller however, Males J. suggested that it was time for a rather different and more exacting approach.

In that case, a multiple section 69 and section 68 application was mounted by the applicant. The essence of the section 68 challenge was that the tribunal had exceeded its jurisdiction by holding that, if not time barred, the applicant’s claim against underwriters fell to be struck out for inordinate delay under section 41(3) of the 1996 Act because its position was to be seen as a defendant and not a claimant. The section 68 application was dismissed on paper as hopeless. The applicant renewed the application and the parties agreed upon a consent order providing for a full hearing, which was approved by the Court. After that full hearing, the application was again dismissed as without merit.

Males J. expressed his concern at the very outset of his judgement:

“[3] The procedure in paragraph O8.5 the Commercial Court Guide for dismissal of a section 68 application at a hearing is intended to be a summary procedure for identifying and disposing economically and promptly of hopeless applications. The provision for an oral hearing of an application to set aside a dismissal on paper should not lead to a major escalation in the costs incurred in dealing with unmeritorious section 68 challenges

[4] I am concerned that in the present case the application to set aside the dismissal on paper has been argued as fully as the section 68 application itself would have been. If that were to become the standard procedure, the availability of a procedure for dismissal on paper would achieve nothing.”

After dealing with the merits of the applications, he proposed a more restrictive and structured approach to section 68 renewed applications.

He pointed out that the ‘paper stage’ and a dismissal on paper at the first stage of O8.5 was concerned solely with the arguability of the section 68 application and whether or not it had a realistic prospect of success, nothing more.

From that starting point, he explained why it would never be appropriate to have a full section 68 type hearing on the renewed oral application under O8.5: this was because the issue remained the same short one: did the applicant have an arguable case or not? That could be addressed in a summary manner, similar to that adopted for applications for permission in other contexts (e.g. as formerly to the Court of Appeal and as in judicial review applications).  

“But it must be remembered that the question at that oral hearing will simply be whether there is a real prospect of success such that the case should be allowed to go forward to a full hearing of the section 68 application. If the oral hearing for which paragraph O8.5 provides becomes effectively a full hearing of the section 68 application preceded by a further round of submissions and evidence, the objective of weeding out hopeless applications at an early stage by a prompt and economical procedure will have been frustrated.” [38]

Males J. suggested a new approach which would effectively dispense with a contested oral hearing [39]. The features of the new procedure would be:

  1. Only a short hearing, “typically no more than 30 minutes”.
  2. Listed before the judge who has dismissed the application without a hearing (who would therefore be already familiar with the issues).
  3. No further written submissions save for a statement by the applicant as to why the Judge’s reasons for dismissal were contested.
  4. Perhaps most revolutionary (and as odds with the approach endorsed in Asset Management) “in general respondents should not attend or, at any rate, should not recover their costs if they do”: this being justified by the fact that “bearing in mind the limited nature of the issue, i.e. whether the claim has a real prospect of success, and that respondents will already have made submissions on the point in writing”.
  5. Special cases might exceptionally need to be dealt with differently but this procedure should otherwise apply generally.

The Way Ahead?

It seems clear that this suggested way forward will certainly be tabled for consideration by the Commercial Court judges and users, given that Males J. stated that the matter “merits further consideration by the judges of this court”.

There is much to be said for the Males J. approach.

In restricting as much as possible the disruption in and delays to the enforcement of an award which are occasioned by unmeritorious challenges, the Court supports English arbitration and allays concerns that English seated arbitrations are too exposed to judicial challenge. 

The exploration of the issues on the proposed section 68 application, which Sir Jeremy Cooke thought potentially valuable, is fully catered for by the “short hearing” at which the applicant will have its case tested by the Judge who has already fully read in and at which the applicant will be able, if possible, to show that an initial view on paper that the case is hopeless is wrong. The prospect of this limited further stiff hurdle will probably discourage all but the most dogged and desperate or those who are faced with the rare case of an unduly harsh paper determination. Paragraph O8.5 already makes it clear that indemnity costs will usually await the applicant who chooses to roll the dice a second time.

Simon Rainey QC

Simon Rainey QC is one of the best-known and most highly regarded practitioners at the Commercial Bar noted for his intellect and advocacy. He has extensive experience of international arbitration, regularly appearing as advocate under all of the main international arbitral rules (LCIA; SIAC, UNCITRAL; ICC, Swiss Rules etc) and also sitting as arbitrator.

Current examples of his work as counsel are in arbitration before the Permanent Court of Arbitration in a US 13billion gas supply dispute; under Nigerian Law and seat in relation to an offshore oilfield redetermination dispute between oil majors, under UNCITRAL Rules in a mining supply take or pay dispute involving one of the world’s leading mine conglomerates; an ICC arbitration concerning a new mine development in Russia and an ICC Dubai seat arbitration involving specialist offshore vessels and in associated s67 and s68 LCIA challenges in the A v B [2017] EWHC 3417 (Comm) litigation in the Commercial Court. Recent arbitral appointments include an ICC Paris seat arbitration concerning a power station failure, a French law and seat arbitration relating to an oil rig drilling contract, an offshore construction contract claim under SIAC Rules and a long-term ore supply contract claim under Swiss Rules.

He is highly ranked by Chambers and Partners and Legal 500 as a first division international arbitration specialist (“Highly regarded for his expertise in handling high-profile international arbitrations in connection with complex oil and gas, banking and finance and trade issues. He is well known for his prowess in advising and representing clients in disputes in countries as far flung as Turkey, Russia, the USA, China and India” 2018; “Incredibly good, with a particular skill in reducing the complicated to the elegantly simple, which when you're trying to present a case to a tribunal or court is one of the more valuable things you need to have” 2018; “Clearly now one of the top commercial silks and a delight to work with.” 2018; “A mixture of brilliance and brevity, his written submissions are like poetry” 2018), He was nominated for “International Arbitration Silk of the Year” 2017 and again in 2019 by Legal 500 and has also been awarded “Shipping & Commodities Silk of the Year” 2017 by both Chambers & Partners and Legal 500.

He sits as a deputy High Court Judge in the Commercial Court and is Honorary Professor of Law, Business and Economics, University of Swansea.

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