Clifford Chance

Many have tried, not all have failed: English Court allows a challenge under section 68 of the Arbitration Act 1996

Section 68 of the Arbitration Act 1996 allows a party to apply to Court to challenge an arbitral award on the ground of serious irregularity. The recent case of Mare Nova is a rare example of a successful challenge, albeit an unusual one arising out of unusual circumstances.

On 10 February 2025, the English High Court handed down judgment in Mare Nova Inc. v Zhangjiagang Jiushun Ship Engineering Co., Ltd,¹ allowing the Claimant's section 68 challenge on the grounds that the arbitral tribunal had dismissed the Claimant's damages claim based on an issue which was never properly before it, denying the Claimant the opportunity to present its case. The Judge dismissed the Claimant's alternative appeal on a point of law under section 69 of the Act, but took the unusual step of nonetheless spending almost half of his judgment on an obiter determination of the merits of that appeal.

Background to the application

The underlying dispute arose out of repairs carried out to a bulk carrier, the M/V "INASE", in a Chinese shipyard in March 2021. Shortly after the vessel sailed out of the shipyard, the crew noticed a burning smell coming from a bearing in the ship's propulsion system which the Defendant repairer had worked on. 

The Claimant referred the matter to arbitration and a sole arbitrator was appointed to determine claims for approximately USD 650,000 which were pursued under two heads of loss: (i) damages for breach of contractual obligations relating to the work to be carried out and the standards of workmanship and materials required; and (ii) damages in the tort of negligence. (The Claimant advanced a separate claim under a six-month contractual guarantee, but this did not form part of the application to the Court.)

The Defendant took no active part in the arbitration or the subsequent Court proceedings. The arbitration proceeded on the basis of written submissions and evidence only; there was no hearing. The Tribunal did, however, put written questions to the Claimant which provided detailed written responses.

In his award, the Tribunal found that the damage to the ship was caused by the Defendant which was held to be in breach of each of the three contractual provisions relied upon by the Claimant. Nonetheless, the Tribunal rejected the Claimant's claims for damages on the basis of two provisions of the contract. The first provided that the vessel would undergo trials following the repairs, to ensure that everything was in good working order "to the satisfaction of the Owner's Representative." The second provided that the Defendant's liability "…shall cease only when all of the work…has been completed to the satisfaction of the Owners or their accredited representative...". In the event, the Claimant did not insist on sea trials and the Owner's Representative signed off on the Defendant's work. The Tribunal held that the Defendant's liability was discharged as soon as the ship sailed from the shipyard.

Sections 68 and 69 of the Arbitration Act 1996

In order to succeed in a section 68 challenge, an applicant must demonstrate:

• A serious irregularity falling within one of nine prescribed categories; and
• That such irregularity has caused or will cause substantial injustice to the applicant.

Among the exhaustive list of matters constituting "serious irregularity" set out in section 68(2) is a failure by the arbitral tribunal to comply with its duties under section 33 of the Act, including a duty to give each party a reasonable opportunity to put forward its case and deal with that of its opponent. 

Separately, section 69 of the Act allows a party to appeal an award to the Court on a point of law (either with the consent of all parties to the arbitration, or with the permission of the Court).

Decision and Reasoning

The Judge held that the key issue on which the Tribunal dismissed the damages claim was never raised in the arbitration proceedings. This constituted a failure by the Tribunal to comply with his section 33 duties, and it was therefore a serious irregularity and one which caused substantial injustice to the Claimant. The Award was remitted to the Tribunal for reconsideration.

Interestingly, the Judge did not stop at holding that the Claimant had been denied the opportunity to argue the discharge of liability point (which would have been sufficient for the purposes of the section 68 application). He went on to say that the Tribunal was also "clearly wrong in law" in concluding that the liability was discharged under either of the contractual provisions upon which the Tribunal had based his decision.

Having allowed the section 68 application the Judge dismissed the section 69 appeal (permission for the appeal having been granted on the basis that it was an alternative to the section 68 application). Somewhat bizarrely, however, he nevertheless went through a detailed (albeit obiter) analysis of the point of law which the Claimant had appealed, concluding that while he did not consider it "appropriate to give any direction as to the terms of any revised award that ought to be made", nonetheless the Tribunal's reconsideration "must proceed on the basis of the law as set out" in the judgment.

Comment

Applications under sections 68 and 69 are rare, and successful applications are rarer still. Just 4% of the section 68 challenges filed in 2020/21 (being the most recent year for which full data is available) were successful; for section 69 appeals, the figure was 5%. Nevertheless, they are powerful statutory provisions which, as Nova Mare demonstrates, can be successfully deployed to challenge an unfavourable award. Despite the difficulties, the spectre of a challenge under sections 68 or 69 is powerful in and of itself. The statutory language of the provisions is increasingly being deployed by practitioners during the course of the proceedings in a bid to persuade tribunals of their client's procedural positions. The warning is clear: do not give us a basis to challenge your award.

The decision in Mare Nova is thus a salutary reminder to arbitral tribunals of the importance of soliciting submissions from the parties on any points which they consider to be relevant to the issues before them. More broadly, it is a reminder that, while successful applications may be rare, they do happen. No tribunal wants to be on the receiving end of the next judicial admonition after all.

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¹[2025] EWHC 223 (Comm)