Will there be an increase in challenges to arbitral awards on grounds of public importance?

Although this report relates to a purely maritime dispute, as to the correct interpretation of a particular clause used in a Charter Party Agreement, it is of general interest as permission to challenge the arbitrators’ award had been allowed on the little used ground in section 69(3) of the Arbitration Act 1996 (the “1996 Act”) that ‘the question is one of general public importance’ and the decision is at least open to ‘serious doubt’. Further, it is a challenge heard shortly after the Lord Chief Justice’s much publicised March 2016 Bailii lecture, in which he commented that the consequence of section 69 of the 1996 Act was that “far fewer appeals from arbitral awards come before the courts, as only a small number satisfy the test for the grant of permission to appeal” resulting in reduced potential “for the courts to develop and explain the law.”

Dry Log Bulk Carriers v Phaethon International Co SA [2016] EWHC 3798 (Comm).

Decision

In May 2016 the arbitrators found in the Charterer’s favour and in June 2016 the owners applied for permission to challenge the interpretation in the award relying on section 69(3). The decision on the challenge was issued to the parties in November 2016 but only recently published.

At the hearing of the challenge the Charterers opposing the challenge argued that, as a preliminary issue, the court should dismiss the appeal because, on the facts, the relevant clause was not engaged and so the issue before the court as to the correct interpretation of the clause was of no consequence. One might have expected Leggatt J to take this point as a ‘preliminary issue’ but he declined to do so referring to the Lord Chief Justice’s speech and the danger that the very popularity and success of arbitration in certain areas of commerce such as shipping will reduce the ability of the courts to develop and keep up to date the law arbitrators must apply: to prevent that from happening there needs to be a sufficient flow of cases to the courts. With that in mind, he concluded that it was right to decide the question posed even if it should turn out to be irrelevant to the parties to this particular dispute.

Leggatt J then carefully analysed the clause and concluded that he agreed with the arbitrators’ decision as to its correct meaning. He then turned to the ‘preliminary issue’ that the Charterers had raised and concluded that they were correct that on the facts of the case the clause was not operative.

Comment

Lord Thomas’ March 2016 lecture met with a mixed reaction, with some commentators arguing that the parties’ agreements to arbitrate their disputes should be respected above the role those disputes may play in the development of English commercial law. Nevertheless, Mr Justice Legatt’s comments in this judgment may well result in an increase in applications to appeal arbitral awards based on grounds of public importance.