In Xstrata Coal v Benxi Iron & Steel,(1) the High Court upheld the claimants' challenge to an award made under Section 68 of the Arbitration Act 1996. Uncertainty as to the identities of the parties to an arbitration agreement and underlying contract had led a Chinese court to refuse to enforce the award. The High Court determined that there was uncertainty or ambiguity as to the award's effect and remitted the award to the tribunal.
Section 68 of the Arbitration Act allows a party to apply to the courts to challenge an award on the ground of serious irregularity. Under Section 68(2)(f), an application may be upheld where there is uncertainty or ambiguity as to the award's effect which has caused or will cause substantial injustice to the claimant – in this case, the award creditors. It is rare for Section 68 challenges to succeed.
Under Section 70(3) of the Arbitration Act, a Section 68 challenge must be brought within 28 days of the award or, if there has been any arbitral process of appeal or review, within 28 days of the date on which the claimant was notified of that process's result.
The defendant had entered into a contract for the sale of coal with a consortium of four sellers collectively referred to as the 'Oaky Creek joint venturers'. The problem that arose in the present case related to the identity of the fourth seller. While the contract named the fourth seller as ICRA NCA Pty Limited, a separate joint venture agreement which was referred to in the contract defined the Oaky Creek joint venturers as including ICRA OC Pty Limited and not NCA.
A dispute arose under the contract and an arbitration seated in England under the London Court of International Arbitration (LCIA) Rules 1998 took place between the defendant and four claimants, including ICRA OC but not NCA. ICRA OC participated throughout the proceedings and, in the award, the tribunal found in favour of all four claimants. Moreover, in subsequent enforcement proceedings, NCA stated that it had no relationship with the Oaky Creek joint venture.
However, the claimants encountered difficulties when they applied to enforce the award against the defendant in China pursuant to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The Shenyang Intermediate People's Court held that since NCA was named in the contract, there was no contractual relationship between ICRA OC and the defendant. It concluded that ICRA OC "should not be deemed as one of the claimants under the arbitration". On that basis, the court refused to enforce the award made in favour of the four claimants including ICRA OC.
The claimants subsequently made an application under Article 27 of the LCIA Rules 1998, pursuant to which a party may request the tribunal to correct in the award any clerical or typographical error or any mistake of a similar nature. The claimants argued that NCA had been referenced in the contract by mistake. However, the tribunal rejected the Article 27 application, holding that amending the reference to NCA entailed more than correcting a typographical mistake: it involved an additional finding which did not fall within the scope of Article 27. While the LCIA Rules 2014 expressly allow for the correction of "any ambiguity", the 1998 rules, which applied in the present case, refer only to "errors in computation, clerical or typographical errors or any errors of a similar nature".
Against this background, the claimants made a Section 68 application to the High Court. Their principal argument was that under Section 68(2)(f) there was uncertainty as to the award's effect that had caused substantial injustice to them by rendering the award unenforceable in the Shenyang court.
Was the Section 68 challenge brought in time?
While the judge did not consider the Article 27 application to be an "arbitral process of appeal or review" for the purposes of Section 70(3) of the Arbitration Act, he held that if there is a material application for a correction, the 28-day period runs from the date of the award as corrected. In the present case, the Article 27 application was indeed 'material', for if it had been successful, the claimants would have obtained a corrected award which they would have been able to enforce in China. In those circumstances, there would have been no need to bring a Section 68 challenge.
In addition, even though the Article 27 application had not resulted in a correction to the award, the judge held that the 28-day period should start to run from the date on which the Article 27 application's result was notified, as opposed to the date of the original award. If the rule were otherwise, well-advised commercial parties would be likely to make precautionary applications under Section 68, pending the outcome of any applications to the tribunal for corrections, so as not to fall foul of the time limit to bring a Section 68 challenge.
Merits of claimants' Section 68 challenge
The judge rejected the defendant's argument that a challenge may be brought under Section 68 only in cases where the tribunal has seriously erred in its conduct of the arbitration. The judge noted that Section 68(2)(f) may be invoked without default on the tribunal's part.
Further, the judge held that there was real uncertainty and ambiguity as to the award's effect. It was unclear whether ICRA OC was entitled to recover on the basis that it was a party to the contract or whether the defendant had waived its right to object to ICRA OC's claim. It was this uncertainty that had allowed the defendant to resist the claimants' effort to enforce the award in China.
The judge accepted the defendant's argument that the award's effect could be easily ascertained as a matter of English law. It could be readily concluded that the tribunal had treated ICRA OC, and not NCA, as:
- a party to the contract;
- a claimant in the arbitration; and
- a beneficiary of the award.
However, that did not mean that there was no uncertainty or ambiguity as to the award's effect: the Chinese court's refusal to enforce the award clearly demonstrated this uncertainty.
It was also clear that the uncertainty had caused substantial injustice to the claimants. A Chinese court had already declined to enforce the award and there was a real risk that other courts might refuse to enforce it for similar reasons. On this basis, the judge granted the claimants' Section 68 application and remitted the award to the tribunal.
The court adopted a pragmatic approach in interpreting the relevant provisions of the Arbitration Act. The judge emphasised the practical consequences of his decision: the rule that, under Section 70, time starts to run once a correction application's outcome is known is "clear and easy to apply". Any other approach would lead to a "proliferation of protective applications", thereby undermining one of the fundamental principles of the Arbitration Act – namely, limiting the extent to which the courts can intervene in the arbitral process.
The judge's broad reading of Section 68(2)(f) also reflects the English courts' enforcement-friendly stance. The fact that an award may be considered unambiguous under English law does not preclude an applicant from succeeding under Section 68(2)(f) on the basis that a foreign court may deem the award to be uncertain.
Ruihan Liu, trainee solicitor, assisted in the preparation of this article.
Endnotes
(1) Xstrata Coal Queensland Pty Ltd (Company 098156702) [now known as Rolleston Coal Holding Pty Ltd] v Benxi Iron & Steel (Group) International Economic & Trading Co Ltd ([2020] EWHC 324 (Comm)).
