Setting aside of arbitral awards under the Arbitration Act 1996 and the UNCITRAL Model Law on International Commercial Arbitration: failure to deal with all the issues

By Prof Jonathan Hill, Professor of Law (University of Bristol Law School).

Back in the 1980s, the Departmental Advisory Committee on Arbitration Law recommended against England adopting the UNCITRAL Model Law on International Commercial Arbitration (‘Model Law’ or ‘ML’). Nevertheless, during the course of the reform process that led to the Arbitration Act 1996, the Model Law played a significant role and its impact can clearly be seen in terms of the 1996 Act’s structure, style and content. Nevertheless, English law retains a number of distinctive features and, even in those areas in which the objectives of the 1996 Act broadly mirror those of the Model Law, there are places where the two legislative schemes diverge.

One significant area of difference is the setting aside of awards. On this issue, the Model Law is, at first blush, simplicity itself. The six grounds for setting aside under art 34 ML replicate bases set out in article V of the New York Convention of 1958 (‘NYC’) on which an award rendered in country A may be refused recognition/enforcement in country B. (For obvious reasons, art 34 ML contains no provision corresponding to art V.1.e NYC.)

The Arbitration Act 1996 approaches setting aside in a very different way. First, in keeping with the traditions of English arbitration law, the 1996 Act provides that, albeit in carefully circumscribed and narrow circumstances, an award may be set aside on the basis that, as regards the merits of the dispute, the arbitral tribunal made an error of English law (s 69). The Model Law, by contrast, follows the modern international practice of making no provision for setting aside because the tribunal did not reach the correct result, either on the facts or the law. Secondly, the 1996 Act separates ‘jurisdictional’ defects (s 67) from ‘procedural’ and other defects (s 68). Thirdly, section 68 lists a total of twelve ‘procedural’ grounds on which an award may be set aside. This contrasts with the ML’s two ‘procedural’ grounds (art 34.2.a.ii and iv). Fourthly, whereas article 34 ML provides simply that an award ‘may’ be set aside if one of the grounds is established (giving the supervisory court a degree of flexibility), an award cannot be set aside under section 68(2) unless the procedural defect relied on by the applicant has caused or will cause substantial injustice to the applicant.

The combined effect of these differences is to produce setting-aside regimes which, although largely seeking to implement the same policies, work in rather different ways. This point can be illustrated by the quite common scenario in which, after an award has been rendered, one of the arbitrants (typically, a respondent whose defence was wholly or partly unsuccessful) challenges the award on the basis that it fails to address an issue which was raised in the arbitration.

Failure by the tribunal to deal with all the issues under the Arbitration Act 1996

According to section 68(2)(d) of the 1996 Act, an award may be set aside if the tribunal ‘failed to deal with all the issues that were put to it’. In the context of applications based on this provision, there are four significant questions: (i) was the matter which the tribunal (allegedly) failed to deal with an ‘issue’? (ii) if so, was that issue ‘put to’ the tribunal? (iii) if so, did the tribunal fail to deal with it? (iv) if so, did (or will) the applicant suffer substantial injustice as a result?

Because of the very limited nature of the right to appeal on a point of law under section 69 (which is, in any event, a non-mandatory provision which the parties may – and often do – exclude by agreement), section 68 is the main focus of attention for the disappointed arbitrant: if an award cannot be challenged because the tribunal reached the wrong result, at least it can be challenged on the ground that the tribunal did not conduct the arbitration fairly. The decided cases suggest, however, that the success-rate of applications under section 68(2)(d) is very low (certainly, less than 10%; probably less than 5%). The supervisory court may well decide, first, that the matter which the applicant claims to have been omitted from the award was merely an argument or line of reasoning, rather than an ‘issue’. Second, that the ‘issue’ in question had not been ‘put to’ the tribunal. As Phang JA observed in BLC v BLB [2014] SGCA 40 at [4]:

It is important not to underestimate the ingenuity of counsel who seek to launch backdoor appeals or, worse still, completely reinvent their client’s cases with the benefit of hindsight in the guise of a challenge based on an alleged breach of natural justice.

Third, that the ‘issue’ had, in fact, been dealt with by the tribunal. This is far and away the most common reason for the rejection of applications based on section 68(2)(d); when the award is looked at in a reasonable and commercial way, it is normally clear that the tribunal had decided the allegedly omitted issue – albeit not in the way that the applicant had hoped. Fourth, that, even if the issue had not been dealt with, the omission had not caused substantial injustice. The requirement of serious injustice will not be met unless the supervisory court is satisfied that, in the absence of the alleged defect, the tribunal ‘might well have reached another conclusion favourable to the applicant’: Colman J in Vee Networks Ltd v Econet Wireless International Ltd [2004] EWHC 2909 (Comm) at [90].

The position under the Model Law

The Model Law has no provision equivalent to section 68(2)(d). This does not mean, of course, that disappointed arbitrants do not seek to challenge awards on procedural grounds in cases where it is alleged that the tribunal failed to deal with all the issues. The question, though, is: how do the sort of challenges which fall within section 68(2)(d) of the Arbitration Act 1996 fit within article 34 ML?

The cases decided in Model Law jurisdictions such as Singapore, Hong Kong, Australia and Canada suggest that there are potentially four pegs on which to hang a procedural challenge based on the tribunal’s failure to deal with all the issues. As will be seen, none of them is completely without its problems.

(1) Art 34.2.a.iii ML

Art 34.2.a.iii ML provides that an award may be set aside if it ‘deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or contains decisions on matters beyond the scope of the submission to arbitration.’ Although this provision is drafted in terms of awards that are ultra petita (in the sense that they go beyond the submission to arbitration), it is interpreted by some commentators and courts also to cover infra petita awards (where the award omits matters that were referred to arbitration). In CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33, for example, the Singapore Court of Appeal accepted that article 34.2.a.iii ML covers not only the situation where an arbitral tribunal improperly decides matters that have not been submitted to it but also where the tribunal fails to decide matters that have been submitted to it.

This interpretation is, however, controversial – it flies in the face of the wording of the provision in question – and there seems to be no reported case in which an infra petita award has ultimately been set aside or remitted on the basis of art 34.2.a.iii ML. Furthermore, there is plenty of authority which rejects an expansive interpretation of art 34.2.a.iii. In the Hong Kong case of Brunswick Bowling & Billiards Corporation v Shanghai Zhonglu Industrial Co Ltd [2009] HKCFI 94, for example, an award was challenged on the basis, inter alia, that the tribunal had failed to address an issue raised as part of the respondent’s defence. This challenge was rejected by Lam J (at [56]) in the following terms:

Failure to consider an issue is a matter that goes to the substantive decision rather than a failure to follow the arbitral procedure agreed by the parties. Thus, the fact that the Tribunal failed to consider the Respondent’s case properly is at most an error of law which cannot be a basis for this court to set aside the award.

(2) Art 34.2.a.ii ML

Article 34.2.a.ii enables the supervisory court to set aside an award if the applicant ‘was unable to present his case.’ It has been argued that the right of an arbitrant to present its case includes not only the opportunity to ‘speak’, but also an obligation on the tribunal to ‘listen’. As Penny J said in Consolidated Contractors Group SAL v Abatovy Minerals SA 2016 ONSC 7171 at [57], a Canadian case:

A party might be said to have been ‘unable’ to present his or her case when … the tribunal ignored or failed to take the evidence or submissions of the parties into account.

Nevertheless, this view of article 34.2.a.ii is unorthodox and an expansive interpretation of the provision involves treating it as though it includes words ‘that are simply not there’: Chiappetta J in Depo Traffic v Vikeda [2015] ONSC 999 at [39].

(3) Art 34.2.b.ii ML

Art 34.2.b.ii ML allows for the setting aside of an award if it in conflict with the public policy of the forum. In a system which has limited grounds on which an award may be set aside, there is a danger that there will be pressure for the courts to expand the scope of public policy to accommodate cases in which it appears that the arbitration has gone seriously wrong in some way, but the complaint does not obviously fall within any of other grounds for setting aside.

It is generally assumed that the principles of natural justice are part of public policy. Admittedly, there is also international consensus that, for the purposes of the NYC and the Model Law, public policy is a narrow concept which is engaged only if an award is ‘contrary to the fundamental conceptions of morality and justice’ of the forum (Parsons and Whittemore Overseas Co. Inc. v Societe General de Industrie du Papier (Rakta) (1974) 508 F 2d 969 at 974) or if upholding the arbitral award ‘would “shock the conscience” … or is “clearly injurious to the public good or … wholly offensive to the ordinary reasonable and fully informed member of the public”’ (Chan Sek Keong CJ in PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2006] SGCA 41 at [59]). Nevertheless, the key principles of natural justice (audi alteram partem and nemo judex in causa sua) may legitimately be regarded as fundamental in a public policy sense.

But, is the audi alteram partem principle engaged if an arbitral tribunal fails to decide an issue that was put to it? Although the argument may appear somewhat stretched, there are authorities from Australia and Singapore that proceed on the basis that the audi alteram partem principle includes a sub-rule that the arbitral tribunal must bring its mind to bear on all important aspects of the dispute before it. According to Front Row Investment Holdings (Singapore) Pte Ltd v Daimler South East Asia Pte Ltd [2010] SGHC 80 and subsequent authorities, an arbitral tribunal’s failure even to consider the case presented by one of the arbitrants is a breach of natural justice. But, to justify setting aside on the basis of public policy, the applicant would need to demonstrate a clear and virtually inescapable inference that the arbitrator did not apply his mind at all to a particular aspect of the applicant’s submissions (see Vinodh Coomaraswamy J in ASG v ASH[2016] SGHC 130 at [62]).

 (4) Art 34.2.a.iv ML

Arbitrators are, as a general rule, required to provide reasons for their decisions. If the tribunal fails to provide reasons (or adequate reasons), arguably it has failed to comply with the procedural rules governing the arbitration and, in principle, the award may be set aside under art 34.2.a.iv (‘the arbitral procedure was not in accordance with the agreement of the parties … or, failing such agreement, was not in accordance with this Law’).

For example, in A v B [2015] HKCFI 1077, a Hong Kong case, an application was made to set aside an award which had failed either to deal with the applicant’s ‘limitation defence’ (that the claims advanced in the arbitration were time-barred under the express provisions of the contract) or to offer any reasons for this omission. Having analysed the award and the way in which the arbitration had been argued, Chan J concluded that the reasons expressed in the award were not sufficient to enable the applicant to understand how, and why, the limitation defence had been rejected.

Chan J decided that the award should be set aside on public policy grounds, a conclusion which entailed an expansive view of the scope of public policy. But, the judge seems to have accepted that, as an alternative, the award could have been set aside under art 34.2.a.iv ML. Chan J rightly pointed out (at [33]) that ‘[a]n award should be reasoned, to the extent of being reasonably sufficient and understandable by the parties.’ If an important issue in the arbitration does not feature (at all) in the award, the parties are not able to understand how and why the tribunal reached its decision and the tribunal has failed in its obligation to provide reasons.

Does this failure entails a breach of the rules governing the arbitral procedure and, as a consequence, justify setting aside under art 34.12.a.iv ML? The answer to this question is unclear. In terms of the Model Law, there is a clear distinction between ‘Conduct of Arbitral Proceedings’ (Chapter V) and ‘Making of Award and Termination of Proceedings’ (Chapter VI), which – in art 31.2 – includes the obligation of the tribunal to provide reasons for its decision. If art 34.2.a.iv ML (which refers to the ‘arbitral procedure’) is concerned only with the matters covered by Chapter V (and not matters within Chapter VI), failure by the tribunal to provide (adequate) reasons cannot be a ground for setting aside under art 34.2.a.iv ML.

Conclusion

Opinions differ on the respective strengths and weaknesses of the 1996 Act and the Model Law. As regards setting aside, the strengths of the Model Law scheme are its relative simplicity and the fact that the grounds for setting aside mirror the grounds in art V NYC (thereby enabling cross-fertilisation of case law under the two instruments and increased opportunities for international harmonisation). However, as the foregoing discussion reveals, the apparent simplicity of the Model Law may be tested by a relatively routine scenario.

Whereas section 68(2)(d) of the 1996 Act provides a clear framework for dealing with challenges based on a tribunal’s failure to deal with all the issues, how such cases should be handled under the Model Law is rather opaque. The courts of different Model Law countries have tried different doctrinal approaches, none of which is entirely satisfactory. Of course, it does not follow from this comparison that the 1996 Act is ‘better’ than the Model Law; indeed, section 68(2)(d) is not without its own problems. But, it needs to be recognised that legislation which appears simple on the page may prove to be rather less straightforward in practice.