Time limit for challenging an award
Where the seat of the arbitration is in England, section 70(3) of the Arbitration Act 1996 (AA 1996) requires challenges to an award to be brought within 28 days. This relatively short time limit reflects the underlying policy of the AA 1996, which is to promote the finality of arbitration awards.
The time limit for challenging an award runs from the date the award is made, not the date on which it is released to the parties. This is a very important point as there is often a delay in the release of an award to the parties in commercial arbitration, particularly in cases where the arbitrators’ fees are outstanding.
Section 56(1) of the AA 1996 gives arbitrators the right to withhold an award pending full payment of their fees and expenses. Article 26.7 of the London Court of International Arbitration (LCIA) Rules provides that the LCIA Court shall transmit the award to the parties provided that all arbitration costs have been paid in full to the LCIA. Article 35.1 of the International Chamber of Commerce (ICC) Rules provides that, once an award has been made, the secretariat shall notify to the parties the text signed by the arbitral tribunal, provided always that the costs of the arbitration have been fully paid to the ICC by the parties or by one of them.
Where there is a dispute between the parties over the payment of the arbitrators’ fees, there is a very real danger that the 28 day deadline for challenging an award may have passed before the award is released to the parties.
This was precisely what happened in Rollitt v Ballard. The award was dated 12 May 2016. On that date the arbitrator informed the parties that the award had been made and would be issued to the parties on payment of the arbitrator’s fees. The 28 day period for challenging the award expired on 9 June 2016. However, there was a dispute between the parties over payment of the arbitrator’s fees and payment was not received until 8 August 2016; this was two months after the expiry of the deadline for challenging the award.
Extensions of time for challenging an award
Not a problem you may think, as surely the court has the power to grant an extension of time. This is true. The court has the power under section 79 of the AA 1996 to grant an extension of time. However, the court’s power is discretionary and the party seeking the extension must show:
“… that the interests of justice require an exceptional departure from the timetable laid down by the Act. Any significant delay beyond 28 days is to be regarded as inimical to the policy of the Act.”
(Popplewell J in Terna Bahrain Holding Co. WWL v Al Shamsi.)
The principles applicable to the court’s discretion to extend time were summarised in Terna v Al Shamsi. The three primary factors that the court will consider are:
- The length of the delay.
- Whether the applicant was acting reasonably in allowing the time limit to expire.
- The contribution to the delay by others.
Factor 1: the length of the delay. The length of the delay is judged against the yardstick of the 28 days provided for in the AA 1996. This means that a delay, even of a few days, is considered significant as it is viewed as undermining the policy of the AA 1996.
Factor 2: whether the applicant was acting reasonably in allowing the time limit to expire. In cases where there is a delay in issuing the award due to a dispute between the parties over the payment of the arbitrator’s fees, the approach of the courts is very clear: the onus is on the party seeking to preserve the right to challenge an award to ensure that the award is issued on time. In practice, this is likely to mean paying the full amount of the arbitrators’ fees in order to secure a timely release of the award.
In S v A and B, the party seeking the extension sought to rely on an arrangement whereby the party appointed arbitrators were to be paid (in the first instance) by their own appointing party. This reliance was found to be misplaced. The court made it clear that it was the responsibility of the party wishing to preserve the right to appeal to ensure the award was issued in time to allow an application to be made “… if necessary by shouldering all of the tribunal’s fees themselves.”
In S v A and B, the outstanding fees were described as being “relatively modest” and there was no suggestion that the party who wished to preserve the right of appeal faced any financial difficulty in making the payments necessary to obtain the release of the award. It was against that background that the reasonableness of the party’s conduct was considered.
The court applied the same principle in Rollitt v Ballard, holding that the fees in question were very modest and that the onus was on the claimant to take appropriate steps to ensure that he preserved any right to challenge the award.
Factor 3: contribution to the delay by others. The fact that the delay in the release of the award is caused by the refusal of one party to pay his share of the fees carries very little weight with the court. Regardless of any contractual arrangement, section 28(1) of the AA 1996 (a mandatory provision) provides that the parties are jointly and severally liable for the arbitrators’ fees and expenses. The courts take the view that a party should be aware that it may have to pay the full amount of the arbitrators’ fees (and then seek to recover those costs from the other party) in order to secure timely release of the award.
Pay to play
In both S v A and B and Rollitt v Ballard, the outstanding fees were described as “modest”, but it would be unwise to assume that the courts would adopt a different approach in cases where the outstanding fees are more significant. The onus is very much on the party seeking to preserve the right to challenge to pay up in order to secure a timely release of the award.
In practice, this tends to be less of a problem in administered arbitrations. Here, the arbitral institution will generally request an advance on costs during the early stages of an arbitration. This gives the parties, or the tribunal, an opportunity to address the consequences of non-payment well before an award is made or (in cases where the advance on costs is insufficient to cover the cost of the award) it will at least serve to reduce the amount of the outstanding fees, hopefully to a modest amount.
It is an approach that could (and perhaps should) be adopted in ad hoc arbitrations. The parties could be required to deposit an amount to cover the arbitrators’ fees in advance of an award being made. Given this line of authorities, it is certainly something worth considering: otherwise the cost of preserving the right to appeal could be very significant.