Source: Adegoke Adedoyin at Simmons Cooper Partners
Introduction
Over the past 20–30 years, International Arbitration has become by far the most popular mechanism for resolving international commercial disputes globally. Arbitration has continued to be adopted as a popular alternative dispute resolution mechanism, both domestically and globally. Arbitration has been defined as a method of dispute resolution involving one or more neutral third parties who are [usually] agreed to by the disputing parties and whose decision is binding. Arbitration is largely about freedom of the parties. It affords parties to voluntarily opt-out the public dispute resolution mechanism into a privately organised one designed to be faster, more efficient, and more accommodating than its public counterpart. According to Greenberg, the effectiveness of international arbitration may be considered from the standpoint of its flexibility, neutrality, finality, and enforceability.
In any arbitration proceedings, the expectation of the parties is that, unless a settlement is reached along the way, the proceedings will end with an award. Obviously, an award will be delivered one way or the other.
An arbitral award (“the award”) may be challenged by an unsatisfied party to the proceedings. Issues regarding the appropriateness or otherwise of judicial challenge of an arbitral award however continue to generate diverse comments from arbitral institutions, courts, writers, and lawyers. Critics of an arbitral-award challenge are firmly of the view that adjudicatory review of arbitral award would undermine arbitration as an institution, since transacting parties opt for private dispute resolution in large part to obtain swift finality.
On the other hand, advocate of judicial review of arbitral award strongly believes that lack of judicial oversight, combined with the considerable power of arbitrators to grant relief, can make arbitration a risky alternative. While this debate remains unresolved (though resolution unexpected), the courts continue to adopt a restrictive approach in reviewing an arbitral award. The restrictive approach of courts in reviewing an arbitral award will be consider in the light of the limited grounds in which a competent court may entertain such challenge.
APPROPRIATENESS OR OTHERWISE OF JUDICIAL CHALLENGE OF ARBITRAL AWARD
Efficient arbitration implicates a tension between the rival goals of finality and fairness. According to Park, freeing awards from judicial challenge promotes finality, while enhancing fairness calls for some measure of court supervision. Obviously, the winner in arbitration proceedings looks for finality, while the loser wants careful judicial analysis of doubtful decisions. These competing interests thus, generate questions regarding whether or not an arbitral award should be subject to judicial challenge. It is undeniably clear that the courts play prominent roles at different stages of the arbitral process from the start to the finish. In the absence of such intervention the fair resolution of disputes before an impartial tribunal, without unnecessary delay or expense, may not be achieved.
There has been the battle for supremacy between the national law, on the one hand, and the independence or autonomy of the arbitration process on the other hand. According to Lurie, whether judicial intervention is viewed as supporting or interfering with the arbitral process will depend upon a range of factors including the timing, manner and degree of such intervention.
According to some schools of thought, court’s involvement in the arbitral process generally constitutes unwanted interference. The most frequently heard cry from arbitration scholars in response to the suggestion that arbitral awards should be subject to more than passing review is that such a practice would undermine arbitration as an institution, since transacting parties opt for private dispute resolution in large part to obtain swift finality. Proponents of this position are of the view that since the arbitration agreement constitutes the basis of the parties’ mutual consensus to adopt a private dispute-settlement mechanism; any decision granted by the tribunal should not be subject to judicial scrutiny.
Conversely, it is the view of some other schools of thought that in reality, the survival of arbitral process depends on judicial participation. In Coppee Lavalin S.A NV v. Ken-Ren Chemicals and Fertilisers Ltd, Lord Mustill pointed out that, it is only a court with coercive powers that could rescue an arbitration which is in danger of foundering. Other proponents of this position hold that judicial scrutiny of arbitral award constitutes a form of risk management. Park observed that, in most countries, courts may vacate decisions of perverse arbitrators who have ignored basic procedural fairness, as well as those of alleged arbitrators who have attempted to resolve matters without the requisite jurisdictional competence. As will be considered later, lack of jurisdiction and other procedural/substantive irregularities constitute valid grounds for judicial challenge of an arbitral award.
Legal frameworks on international arbitration seek to achieve a balance between party autonomy in arbitration against the abuse of process that may occur if arbitral tribunals are left unchecked. These legal frameworks provide distinct and limited grounds for judicial challenge of awards. For instance, the Nigeria’s Arbitration and Conciliation Act (ACA) establishes extremely limited grounds for judicial review of arbitration awards.
These limited statutory grounds are obviously to reduce the level of judicial challenge of arbitral award.
GROUNDS FOR JUDICIAL CHALLENGE OF ARBITRAL AWARD
JURISDICTIONAL GROUND:
• Incapacity or Invalid Agreement to Arbitrate
An arbitration agreement constitutes the cornerstone of all international arbitration. As such, an invalid agreement to arbitrate may constitute a ground for judicial challenge of an award. Of similar importance is the capacity of the parties to the arbitration agreement. Like in normal contracts, a natural or legal person with legal capacity to enter a valid contract may enter into an arbitration agreement. Any incapacitation may constitute a valid ground for judicial challenge of any award granted under such proceedings.
• Judicial Review for Arbitral “Excess of Power”
The most common and generally the most promising of the statutory challenges to an arbitration award is that the arbitrators exceeded their powers. This standard reflects the fact that the power of the arbitrator to decide a matter is derived from the underlying agreement and nothing more. This ground of challenge will arise where the tribunal does have jurisdiction to arbitrate the dispute, but however exceeded its powers by arbitrating disputes not submitted to it.
• Arbitrability
Basically, arbitrability is concerned with the question of whether a dispute is capable of settlement by arbitration under the applicable law. The New York Convention provides:
Each Contracting State shall recognise an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration. [Emphasis mine]
According to Redfern, in some jurisdiction like France, the question of arbitrability of a dispute is inextricably linked to the substantive ground of public policy. Put differently, the law of the seat of arbitration determines the arbitrability or otherwise of a dispute. In U.S, for instance, public policy as a ground for challenging an award is not expressly provided in the Federal Arbitration Act; nevertheless, the courts continue to adopt it as a non-statutory standard of challenging an arbitral award.
PROCEDURAL GROUND:
Procedural Irregularity
In International Commercial Arbitration, certain minimum procedural standards must be observed. Such procedural standards are intended to ensure arbitral proceedings accord with parties’ mutual agreement, proper composition of arbitral tribunal and requisite notice of proceedings, hearings, and awards to the parties. Each jurisdiction has its own defined minimum procedural standards which must be observed.
Faulty constitution/ appointment of arbitrators
Basically, parties are free to agree on a procedure of appointing the arbitrator(s). Failure of the arbitrators to observe the clauses regarding their appointment or composition will constitute a valid ground for setting aside an award. For instance, Section 8(3)(c) of Nigeria’s Arbitration and Conciliation Act accommodates instances where an arbitrator may be challenged if he does not possess the qualifications agreed by the parties. However, if there is no agreement between the parties as to the arbitral procedures, there can be no question if the tribunal exercise its power in choosing any procedure provided other fundamental principles are observed e.g. fair hearing etc.
SUBSTANTIVE GROUND:
Mistake of Law
Many jurisdictions do not regard mistake of law as a valid ground of challenging an award and the courts have been cautious in interfering with the merit of an arbitral proceedings. The Arbitration Act, for instance, recognises an appeal against an award on question of law with some caveats. It provides:
Unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court on a question of law arising out of an award made in the proceedings.
However, an appeal cannot be brought except with the consent of all the other parties to the proceedings, or with the leave of the court. In practice, English courts have been extremely restrictive in allowing challenges on grounds of mistake of law.
Under the US Federal Arbitration Act, no express mention was made of ‘mistake of law’ as a ground for challenging an award. Although, US courts have held that an award may not be set aside on such grounds; nonetheless, the courts recognise ‘manifest disregard of the law’ as a non-statutory ground for challenging an award. This ground originated in the U.S. Supreme Court’s 1874 decision in U.S. v. Farragut, 22 Wall. 406. Subsequent US courts’ decision have recognised and adopted this ground of challenge. However, the US courts like their English counterparts, are equally careful in entertaining challenge of awards on ground of error of law.
Mistake of Fact
As Redfern noted, while justification may exist for allowing a challenge on question of law, no such justification or interest in the finding of fact of a tribunal’s proceedings. ‘Mistake of fact’ does not constitute a ground for challenging an award under the Model Law and most national legislations do not regard it as a valid ground of appeal.
Public Policy
An award may be set aside on the ground that the award negates public policy. There is no internationally harmonised ‘public policy’ ground for challenging an award. Thus, a challenge on public-policy ground depends on the legal system of the seat of arbitration. The Model Law and the New York Convention recognise the setting aside of an award where the award or its enforcement conflicts with the public policy of the State.
OUTCOME OF A SUCCESSFUL CHALLENGE
Where an award has been submitted to a court for review, what are the possible decisions the court might deliver? The court may decide to- confirm the award; vary the award; refer it back to the arbitral tribunal for consideration; or set aside (wholly or partly). Where the award is varied, the variation has effect as part of the tribunal’s award. Where the award is remitted to the tribunal, in whole or in part, for reconsideration, the tribunal shall make a fresh award in respect of the matters remitted within three months of the date of the order for remission or such longer or shorter period as the court may direct.
As earlier mentioned, in almost all cases, where an award was set aside by the court, such award becomes invalid and unenforceable in any jurisdiction.
CONCLUDING REMARKS
From the above discussions, although diverse opinions exist regarding whether an arbitration award should be subject to judicial review; nevertheless, in practice, most legal systems are satisfied with the limited approach recognised and adopted in interfering with the final decision of an arbitral tribunal. Additionally, most courts generally uphold the notion of finality and correctness in favour of an award; thus, imposing a burden on the claimant/petitioner to proof to the satisfaction of the courts the existence of the alleged irregularity. As such, except where the alleged deficiency is serious and have occasioned substantial injustice to the claimant/petitioner or contrary to public policy of the seat of arbitration, a court will be inclined to affirm the arbitration award.
