UNCITRAL rules do not impose higher 'fairness' burden on tribunal

The point was one of nine separate challenges to an arbitration award brought by two energy companies against the Indian government, in a dispute over two contracts for the exploitation of petroleum resources. Mr Justice Popplewell ultimately dismissed eight of the nine challenges, but found that the tribunal's failure to deal with one of the issues put forward by the claimant companies was sufficient to overturn the award.

Section 68 of the 1996 Arbitration Act allows a party to an arbitration to challenge the award in the courts if it can show a "serious irregularity" which leads to a "substantial injustice". This test is a difficult one to meet, as the Arbitration Act was designed to reduce the ability of the courts to intervene in the arbitral process.

In a previous case, Mr Justice Popplewell explained that "a balance has to be drawn between the need for finality of the award and the need to protect parties against the unfair conduct of the arbitration".

"In striking this balance, only an extreme case will justify the court's intervention," he said.

"Relief under section 68 will only be appropriate where the tribunal has gone so wrong in its conduct of the arbitration, and where its conduct is so far removed from what could reasonably be expected from the arbitral process, that justice calls out for it to be corrected," he said.

The judge acknowledged that, in the present case, it was true that the words "full" and "reasonable" could mean different things. However, he said that the difference here was not such that it "impos[ed] any higher burden on the tribunal so far as relevant to the current challenge".

"The claimants' complaint is not that they did not have a full opportunity to advance their own construction and all the points they wished to advance in support of that construction; their complaint is that they did not have a fair opportunity to deal with all of the ultimately relevant arguments in support of the construction advanced by the government and accepted by the tribunal," he said.

"The arbitrators are masters of their own procedure … subject only to the overriding obligations of fairness … and it seems to me to be inconsistent with the guiding principles of speedy finality and minimal court intervention enshrined in [section] 1 of the 1996 Act to treat [the UNCITRAL Rules] as requiring arbitrators to give a greater opportunity to the parties to put their case and deal with that of their opponents than that which is reasonable," he said.

The judge also dismissed a challenge brought by the claimant companies on jurisdictional grounds. The companies had argued that the well-established 'foreign act of state doctrine', which prevents a court from sitting in judgment over a legislative or executive act of a foreign state in relation to property in the foreign state's territory, did not apply in arbitration cases, as an arbitral tribunal is not an "organ of a sovereign state" in the same way as a court.

Mr Justice Popplewell rejected that argument on the grounds that the doctrine was not based on whether the tribunal was an "organ of a sovereign state" but was instead "a general principle of English private international law which recognises the sovereignty of nations within recognised spheres". He also rejected an additional argument by the claimant companies that, by agreeing to arbitration in a commercial contract, the Indian government had waived its right to object to the tribunal determining any sovereign state issues.

Commercial arbitration expert Richard Dickman of Pinsent Masons, the law firm behind Out-Law.com, said that the case "demonstrates how robust the courts are in dealing with section 68 challenges".

"The courts are keenly aware of the need to avoid being seen to be excessively interventionist," he said. "This is a key element of protecting and maintaining London's position as a centre for international arbitration."

"Having chosen to submit their disputes to arbitration, the parties should be held to their bargain and should abide by the tribunal's decision. However, where the tribunal has been guilty of a serious irregularity which gives rise to substantial injustice, the court will not shy away from correcting the irregularity, as shown by the successful challenge," he said.