Mare Nova: a rare s.68 success – New Law Journal

Mare Nova Incorporated v Zhangjiagang Jiushun Ship Engineering Co. Ltd [2025] EWHC 223 (Comm) is a rare example of a successful challenge under s.68 of the Arbitration Act 1996 (“Act“) and is a welcome reminder of the high threshold of s.68.  The case serves as a cautionary tale on the use of the arbitrator’s power to raise legal issues independently of the parties and its wider implications on the principles of fairness and impartiality.  It also provides guidance on the scope of arbitrator duties when cases are remitted for reconsideration under s.68(3) of the Act.

Background

In March 2021, the Defendant carried out repairs on the Claimant’s vessel (the “Vessel“) pursuant to a contract.  The Claimant’s representative signed off on all the Defendant’s repairs and did not insist on sea trials.  Three hours after the Vessel had left the Defendant’s shipyard, a burning smell was detected.  Upon inspection, damage to the Vessel’s propulsion system was discovered.

The Claimant referred the matter to arbitration in accordance with the contract.  A sole arbitrator was appointed.  The Claimant claimed USUSD 652,937 in damages for breach of contract, negligence, and/or money due under a six-month guarantee.  The arbitration proceeded by way of written submissions and evidence only (with no hearing), and with the arbitrator exchanging questions and answers with the Claimant.  The Defendant did not participate.The Tribunal found that the Defendant caused the damage.  However, the Tribunal rejected the damages claim, finding that the Defendant’s liability was discharged the moment the Vessel left the shipyard, by virtue of clauses 2.1 and 6.3 of the General Conditions; this was despite the question of whether the Defendant’s liability could be discharged in this way having never being raised in the arbitration.   An award of USD 298,651 was given in favour of the Claimant in respect of the guarantee only.

The Claimant challenged the award under ss.68(2)(a) and 68(2)(d) of the Act (although the latter was not pursued).  The Claimant contended that the Tribunal’s dismissal of the damages claims based on its interpretation of clauses 2.1 and 6.3 constituted a serious irregularity because the issue had never been raised in the arbitration.  The Claimant argued that this gave rise to a substantial injustice because the Claimant was “deprived of the opportunity to contend, with at least a realistic prospect of success, that the Defendant’s liability was not discharged“.  The Claimant also appealed the award under s.69 on the basis that the Tribunal’s interpretation of those clause was incorrect as a matter of law.

Sections 33 and 68 of the Act

Section 68 of the Act allows parties to challenge awards on grounds of serious irregularity.  To succeed, the applicant must essentially demonstrate:

1. A serious irregularity falling within one of nine prescribed categories; and
2. That such irregularity caused or will cause substantial injustice to the applicant.

Where a serious irregularity is found to have caused substantial injustice, the award may be remitted to the tribunal, set aside, or declared to be of no effect.

One of the prescribed grounds, at s.68(2)(a), stipulates that a serious irregularity arises where the tribunal fails to comply with s.33 of the Act.  This sets out the general duty of a tribunal to: (i) act fairly and impartially as between the parties and to give each party a reasonable opportunity to put its case and respond to that of its opponent; and (ii) adopt procedures suitable to the circumstances of the case so as to provide a fair means for its resolution.

Decision

The Court upheld the Claimant’s s.68 challenge because the key issue on which the award was premised (i.e., the ‘discharge question’) was never raised during the arbitration.  This, the Court held, was a failure by the Tribunal to comply with its general duty under s.33, thus constituting a serious irregularity under s.68(2)(a) of the Act.  That failure caused the Claimant substantial injustice because it was unable to deploy its positive case which, given that the Court considered that the Tribunal had in fact got the law wrong in its interpretation of the relevant provision, had a realistic prospect of success and that the larger damages claim should be allowed.  The award was therefore remitted to the Tribunal for reconsideration.  The Court refused the s.69 appeal but only because the Claimant had succeeded in the s.68 challenge. Indeed, despite refusing the s.69 appeal, the judge proceeded to set out a lengthy obiter opinion as to the correct legal position, as he considered it relevant to there having been a serious injustice, and mandated that the Tribunal follow it during its reconsideration.

Success and Failure Under s.68

When considered alongside other s.68 challenges, the rarity of the success in Mare Nova becomes apparent.  The threshold for success under s.68 is high as the court wishes to maintain England’s status as pro-arbitration and pro-enforcement.  Indeed, of the 27 s.68 applications made to the Commercial Court in 2022-2023, five were dismissed at a hearing and 11 were dismissed on the papers.  The remainder were discontinued (3), settled (3), transferred out (3), withdrawn (1), or pending (1).

The Court will only interfere with an award under s.68 where it is clear that something has gone seriously wrong, to the clear detriment of the applicant party.  This can be seen in another couple of recent (albeit still rare) cases where s.68 challenges have been upheld.  The first of these, although “highly unusual“, is Nigeria v Process & Industrial Developments [2023] EWHC 2638 (Comm), which highlights the importance of s.68 in maintaining the rule of law.  The underlying arbitration concerned a frustrated gas supply agreement and resulted in two awards in P&ID’s favour, one of which in 2017 ordered Nigeria to pay P&ID damages of USUSD 6.6 billion plus 7% interest.  By the time judgment was handed down on the challenge in 2024, the figure had grown to USUSD 11 billion.  Nigeria challenged the awards under s.68(2)(g) of the Act on the primary ground that P&ID secured the awards by way of bribery, corruption, and perjury.  The court identified wrongdoing before and during the arbitral process which amounted to serious irregularities under s.68(2)(g) and found in favour of Nigeria.

A successful application was also recently made in Kazakhstan v World Wide Minerals and others [2025] EWHC 452 (Comm).  The case involved a tribunal’s failure to address aspects of Kazakhstan’s causation case that had been specifically remitted to it following an earlier successful s.68(2)(a) challenge by Kazakhstan.  The court held that the tribunal’s failure to consider Kazakhstan’s counterfactual (that the investment would have failed in any event) amounted to a failure to deal with an essential issue under s.68(2)(d).  The court held that Kazakhstan suffered substantial injustice because, had the tribunal considered the counterfactual, the tribunal’s decision might have been vastly different.  Viewed in conjunction with Mare Nova, the case shows the court’s readiness to intervene where procedural fairness is compromised, especially where key arguments are overlooked or adequate reasoning is not provided, as well as the need for awards to expressly engage with all issues.

However, these cases are exceptional as the above statistics show.  A recent unsuccessful application was made by Radisson in Radisson Hotels Danmark v Hayat Otel [2023] EWHC 892 (Comm).  In this case, Radisson became aware late in the arbitration process of communications between Hayat, its advisors, and its appointed arbitrator.  Radisson argued that this constituted impropriety and sought to set aside an award in Hayat’s favour under s.68(2)(a), s.68(2)(c), and s.68(2)(g).  However, while Radisson had learnt of the communications in September 2021, it had only decided to use the communications as a basis for its challenge in January 2022, and so was found to have essentially ‘banked’ them for later use while continuing to participate in the arbitration hoping for a favourable outcome.  The court held that Radisson was precluded from raising its objection under s.73 of the Arbitration Act, demonstrating the importance of bringing challenges promptly.

Arbitrators’ Powers and Duties

Mare Nova is significant as it underlines the importance of an arbitrator’s adherence to the principles of fairness, impartiality, natural justice and due process.  While arbitrators may interpret and apply the law, they must exercise caution when considering legal issues not expressly raised by the parties.  Arbitrators must ensure all legal arguments and issues are clearly identified, and each party has reasonable opportunities to present their cases, and respond to those raised against them, especially when it comes to raising and deciding legal issues not introduced by the parties.​  Introducing and deciding upon such issues without giving parties the chance to respond can constitute a serious procedural irregularity, potentially leading to challenges.  As such, Mare Nova highlights the delicate balance arbitrators must strike between the application of the law and the duty to conduct proceedings fairly.

Mare Nova also provides guidance on what arbitrators are required and allowed to do when a matter is remitted for reconsideration.  The key points are:

1. Remission is not a clean slate. Arbitrators are not given carte blanche to re-litigate the dispute.  Instead, the arbitrator must limit their reconsideration to the specific issue or irregularity identified.  In Mare Nova, the Tribunal’s improper reliance on an unargued legal point led to the judge requiring reconsideration on the basis of the law prescribed by the judgment.
2. Correction of the irregularity is the goal, not rewriting the case. The arbitrator’s role is to revisit the award in light of the identified flaw and to provide the parties with an opportunity to be heard on that point.  The purpose is not to introduce new reasoning or revisit findings that were unaffected by the procedural defect.
3. Section 33 duties apply as usual. Even on remission, the arbitrator remains bound by the general duty under s.33 of the Act to act fairly and impartially, give parties reasonable opportunities to present their cases, and adopt suitable procedures.
4. Avoiding further procedural pitfalls. Arbitrators must be especially cautious not to introduce new legal issues without notice, even in remitted cases.  Clarity of process and transparency are paramount.  Parties should be informed of all issues being considered and allowed to comment.

Mare Nova is a reminder for arbitrators to carefully interpret the remission order (i.e., to reconsider just the part of the reasoning in the award in which the procedural irregularity was identified).  Upon remission, arbitrators should solicit submissions from both sides on the specific issue(s) remitted and document that process clearly in the revised award.  Lastly and importantly, arbitrators may not extend the scope of reconsideration unless expressly authorised; doing so could result in further challenges.