International perspective on grounds for setting aside arbitral awards

By Mariana Zhong, Hui Zhong Law Firm
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Shortly after an arbitral award is rendered, remedies to the award could take place through a party’s application for correction and/or clarification of the award, and/or issuance of a supplemental award, despite the arbitrators being functus officio at that time.

Mariana Zhong, Hui Zhong Law Firm
Mariana Zhong
Partner
Hui Zhong Law Firm

Afterwards, when the arbitral award is submitted to a national court for judicial review, denial of the award could occur through a party’s application to set aside the award (at the court of the place where the award was rendered) or non-enforcement of the award (at the court of the place where enforcement was sought). Some national courts, such as in the UK, further allow the parties to appeal on points of law decided in an arbitral award (see the UK Arbitration Act, section 69).

Of all the remedies available to the parties with respect to an arbitral award that has taken effect, setting aside the award is perhaps the most disastrous consequence that could occur to a winning party, although some jurisdictions such as France may still enforce an arbitral award that has been set aside.

The 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) prescribed the circumstances in which a national court may decide not to recognise and enforce an arbitral award, leaving the grounds for setting aside the award to specific national legislation. Interestingly, many Model Law and non-Model Law jurisdictions have applied the same non-enforcement standards as in the New York Convention in the setting-aside reviews.

Of the various grounds for setting aside an arbitral award, breach of due process (in some common law jurisdictions, breach of natural justice) is perhaps one of the most frequently pleaded of grounds. However, lack of reasons is also a ground worth discussing.

BREACH OF DUE PROCESS

The UK Arbitration Act prescribes that a party may challenge an arbitral award if there is “serious irregularity” affecting “the tribunal, the proceedings or the award”, and such serious irregularity is defined as circumstances that have, in the view of the court, “caused or will cause substantial injustice to the applicant”.

The law goes on to list several scenarios in which such serious irregularity would arise, for instance the tribunal’s failure to conduct the proceedings in accordance with the procedure agreed by the parties to deal with all issues put to it, or to comply with the requirements as to the form of the award (see UK Arbitration Act, section 68).

In China, the currently effective Arbitration Law (1995) provides that the court may set aside a domestic arbitral award if, among others, the constitution of the arbitral tribunal or the proceedings of the arbitration had violated the legal procedures.

The same law also provides that the court may set aside a foreign-related award if, among others, the constitution of the tribunal or the proceedings of arbitration did not comply with the arbitration rules, or the respondent did not receive notice on appointment of an arbitrator, or of the arbitration proceedings, or was otherwise unable to present its case for reasons not attributable to the respondent (see the Arbitration Law, articles 58 and 70).

Singapore also differentiates between domestic and international arbitration and applies stringent conditions on setting-aside reviews of arbitral awards rendered in international arbitration. Under the Singapore’s International Arbitration Act, not all violations of procedures would constitute a “breach of natural justice”, and only those in which a party’s rights have been severely prejudiced would possibly lead to a conclusion of breach of natural justice and, further, the setting aside of the award (see International Arbitration Act, 2020 revision, article 24). However, in practice, this standard is applied very strictly, and the threshold is extremely high.

As violation of due process has been so broadly and heavily pleaded, there has been a prevailing trend towards tightening the application of this ground in setting-aside reviews. Still, this ground could be easily abused in practice, and has already become a go-to strategic point whenever a party receives a losing arbitral award.

LACK OF REASONS

Most jurisdictions would require an arbitral award to contain reasons, unless the parties agree otherwise, or the arbitral award is an award of consent (for example, the UK Arbitration Act, section 52; the Hong Kong Arbitration Ordinance, section 67; and the PRC Arbitration Law, article 54).

It is not necessary that the arbitrators’ reasons must be long; in fact, lengthy reasons often would not necessarily enhance the quality of the award. The UK courts, as is the case with many other courts in the world, do not expect the arbitrators to analyse the law and the authorities (as they are not judges), but have set down some minimum requirements such as that “they should explain how they reached their conclusion”, and that the explanation shall be “intelligible and adequate”.

Lack of reasons is a ground for setting aside the award in some jurisdictions. For instance, under article 1492 of the French Code of Civil Procedure, a domestic arbitral award can be set aside for lack of reasons.

In 2019, the Supreme Court of India set aside an arbitral award based on the ground of “insufficiency and inadequacy of reasoning”. India’s Chief Justice, NV Ramana, and two other justices, Mohan Shantanagoudar and Ajay Rastogi, decided that the arbitral award was passed without “adequate” reasons, which rendered the arbitral award “unintelligible” and, further, “unsustainable”.

The Indian justices based their decision on the jurisprudence of section 31(3) of the Indian Arbitration Act, which provides that arbitral awards shall state reasons on which they are based. (See Dyna Technologies Pvt Ltd v Crompton Greaves Ltd)

Finally, despite the Chinese law requiring that an arbitral award shall contain reasons unless the parties agree otherwise, lack of reasons has not become a statutory ground for setting aside an arbitral award in China.

This does not mean, however, that arbitrators in China are subject to a more relaxed requirement on giving reasons in their awards. Many Chinese arbitration institutions require their arbitral awards to contain reasons, and often return the draft awards to the arbitrators for further elaboration if a lack of reasons is found during the secretariat’s scrutiny of the draft awards.

Mariana Zhong is a partner at Hui Zhong Law Firm

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