International arbitration enforcement: Court of Appeal clarifies UK courts’ jurisdiction to intervene

27th January 2020

In a case which will be of interest to anyone concerned with international dispute resolution (and, in particular, to those concerned with international arbitration) the Court of Appeal has made significant orders which emphasise the importance of choice of seat of arbitration and which clarify the UK court’s powers to intervene in international arbitration award enforcement.

The headline-grabbing case of Minister of Finance (Incorporated) & Anor v International Petroleum Investment Company & Anor [1] has confirmed that the UK courts have jurisdiction to supervise and, to some extent, ultimately to ‘police’ the resolution of disputes via London-seated arbitrations – even where parties may have contracted to the contrary.  Walker Morris’ international dispute resolution specialists Gwendoline Davies and Nick McQueen explain that parties opting for a London-based arbitration as their dispute resolution method of choice are therefore afforded the comfort of oversight by the courts, and highlight the practical points arising from this case.

Why is this case of interest?

The Court of Appeal judgment in Minister of Finance v International Petroleum Investment Company stems from the international scandal in which the former prime minister of Malaysia allegedly conspired with Abu Dhabi-based companies to misappropriate over US$ 3.5 billion and to stymie investigation of the conspiracy.

The dispute, which has involved various arbitral and court proceedings, has resulted in clear guidance from the Court of Appeal as to the circumstances in which the UK courts will intervene in international arbitration award enforcement.

The case confirms that parties to a London-seated arbitration cannot contract out of the rights to challenge arbitral awards on the basis of jurisdictional defect or procedural irregularity pursuant to sections 67 and 68 of the Arbitration Act 1996 (the Act).

The case also clarifies the UK courts’ approach to the exercise of its discretion to award an injunction to restrain arbitration proceedings.

What practical points arise?

• Where parties’ arbitration agreements provide that disputes are to be resolved with a London seat, sections 67 and 68 of the Act (the rights to challenge an arbitration award on the basis of, respectively, jurisdictional defect and procedural irregularity) are mandatory and will apply notwithstanding any agreement to the contrary. Choosing a London-seated arbitration process therefore affords parties the comfort of the supervisory jurisdiction of the English courts.
• In those circumstances, the English courts have a responsibility to determine section 67 and 68 applications, and to do so as quickly as possible, so as to avoid uncertainty and so as to uphold the integrity of the arbitration enforcement system.
• When a court determines a section 67/68 application, it performs the important function of giving effect to the arbitration agreement itself, but it also performs an important public function. It is in the public interest that a valid arbitration award should be recognised and enforced.  In the UK, in exercising the supervisory role assigned to them by the Act, the courts act as a branch of the state, not as a mere extension of the consensual arbitration process.
• Conversely, it is against the public interest for the powers of the state to be utilised to enforce an award in a case where the arbitrators had no jurisdiction or which is the result of a serious irregularity.
• The stakes in a section 67/68 challenge are high, and involve significant hurdles for an applicant to overcome. Allegations of jurisdictional defect or procedural irregularity should, therefore, be supported with proof of substantial injustice.
• The courts have case management powers to stay section 67/68 challenges, but compelling reasons are required.
• The courts also have a discretion to grant an injunction to restrain arbitration proceedings, but such an injunction should only be granted in exceptional circumstances and where continuation of an arbitration would be vexatious, oppressive or unconscionable.
• Overall, the Court of Appeal’s judgment in Minister of Finance v International Petroleum Investment Company demonstrates the English courts’ careful and considered approach to arbitration award enforcement, which seeks to balance both the individual need to give effect to the parties’ particular arbitration agreement, and the national and international public interest in ensuring the integrity of the arbitration process.

What happened in the particular case?

When Mr Najib Razak was prime minister of Malaysia, the claimant (part of the Malaysian government) and defendant entered into a financial settlement which included for a London-seated arbitration consent award, which was then made.  Following Mr Najib Razak’s departure as prime minister, the claimant sought to set aside the arbitration award by way of a section 67and 68 challenge on the bases that: to the defendant’s knowledge, Mr Najib Razak lacked the requisite authority to enter the financial settlement and therefore the arbitral tribunal did not have jurisdiction to make the award (section 67); and the award was procured, by fraud or in a way that was contrary to public policy, for Mr Najib Razak’s personal benefit, and that constituted a serious procedural irregularity.  In response to the section 67/68 challenge, the defendant commenced two further arbitrations under the financial settlement deeds, which the claimant then sought to restrain via an injunction.

At first instance the High Court stayed the claimant’s section 67/68 challenge and refused the injunction to restrain the further arbitrations.  The Court of Appeal reversed the High Court’s decisions, concluding that the High Court judge had failed to recognise the claimant’s statutory right to challenge the arbitration award (notwithstanding any contractual provisions to the contrary); that there were no compelling reasons to stay that challenge; and that an injunction was justified as the further arbitrations were a clear, vexatious and oppressive attempt to fetter the claimant’s statutory right to challenge.

The claimant’s section 67/68 challenge will therefore now proceed, and it remains to be seen whether the allegations of jurisdictional defect or procedural irregularity can be made out on the facts.

[1] [2019] EWCA Civ 2080