In STA v OFY  EWHC 1574 (Comm), the Commercial Court heard an application by STA, a sovereign state (the State), for an extension of time to challenge an arbitral award, after the relevant periods to seek an extension and apply to challenge the award had expired. In determining the application, the court not only collated the latest case law, but provided helpful commentary on how many of the relevant principles should be applied. The judge’s decision includes a reminder that, in the context of such applications, the fact that a party is a sovereign state is of little significance.
OFY contended that the State had wrongfully repudiated a contract under which OFY was to provide a fast-track power generation solution. OFY claimed that, because of the State’s repudiation, it was entitled to a termination payment. An arbitral tribunal made an award in favour of OFY for the full amount of the contractual termination payment, USD 134 million, plus interest and costs (the Award). The State’s counterclaim was dismissed.
The State had already applied for a 56-day extension of existing 28-day period in which it could challenge the Award, as prescribed by s.70(3) Arbitration Act 1996. Andrew Baker J had granted the State a 14-day extension, until 8 March 2021. However, the court order’s terms were that any application for a further extension of time had to be made by 5 March 2021.
No application was made for an extension by 5 March 2021, and no challenge against the Award was issued by 8 March 2021.
On 1 April 2021, the State, acting through a new law firm, issued a Claim Form, applying to challenge the Award, under s.68 Arbitration Act 1996. On the same day, the State also issued an Application Notice for an extension of time for bringing the challenge to the Award. The Application Notice noted that as well as the State having instructed the new law firm on 15 March 2021, the State’s new Attorney-General had been sworn in on 5 March 2021, following a recent general election.
The Kalmneft factors
After hearing the State’s application for an extension, Mr Justice Butcher helpfully drew together the principles regarding extensions of time to challenge an arbitral award, from numerous recent leading cases, including Kalmneft v Glencore  1 Lloyd’s Rep 128. In addition to collating the existing case law on the Kalmneft factors, Butcher J’s decision provided significant commentary on the interpretation of the various factors, including the ‘primary factors’ ((1)-(3) below):
1. Length of the delay
- The length of the delay is to be judged relative to the 28-day period provided for by s.70(3) Arbitration Act 1996 (Terna Bahrain v Bin Kamil  EWHC 3283 at ). The first extension of 14 days, was therefore “significant and substantial”, “a delay measured even in days is significant; a delay measured in many weeks or in months is substantial.”
- The length of the arbitration process “should not have any significant bearing on the time within which an application [to challenge an award] should be made…”.
- The amount of money involved is also not germane, and “not a reason why a longer period should be taken to make an application”. Butcher J noted that the fact of a large sum might have the very opposite effect, increasingly the “seriousness and significance of a failure to act promptly”.
2. Whether the party who permitted the time limit to expire and subsequently delayed was acting reasonably
- It is normally incumbent on the Applicant to adduce evidence to explain his conduct, unless circumstances make it impossible. In the absence of an explanation, the Court will give little weight to arguments that evidence discloses potential reasons. The example given by Butcher J, was an argument that the Applicant was unaware of a time limit, if he has not said so expressly or by necessary implication, in his evidence.
- The question of whether a party was acting reasonably encompasses the question of whether a party acted intentionally to delay making an application. “There is a public interest in litigants before the English Court treating the Court's procedures as rules to be complied with, rather than deliberately ignored for perceived personal advantage.” Developing this principle, the judge found that where evidence is “consistent with laxity, incompetence or honest mistake on the one hand, and a deliberate informed choice on the other, an applicant’s failure to adduce evidence that the true explanation is the former can legitimately give rise to the inference that it is the latter.”
- The judge considered various cases where applications for extensions had been made by governments. He found that in “the context of applications in respect of arbitrations the fact that a party is a foreign state is a matter of little significance” and “the fact that an entity – whether a government or otherwise – may have bureaucratic decision-making processes, does not justify delay”, while noting Bryan J’s decision in Process and Industrial Developments v Federal Republic of Nigeria  EWHC 3714 (Comm) that in this context, a sovereign state is “a litigant like any other litigant and… is expected to comply with the rules and provisions of the CPR and with any directions given by this court.” In the context of this application, Butcher J found that the swearing in of the State’s Attorney-General, did not mean that the State was unable to act in the meantime. The State’s previous legal representatives had made the application for the first extension the day after their initial instruction. The State’s application had also stated that members of the Attorney-General’s office had contracted COVID-19, which had caused significant disruption due to the subsequent need to operate on a ‘shift basis’, and exacerbated further by the State’s civil service still being heavily dependent on paper documents. However the judge found that the evidence of the impact of COVID-19 on the State was “wholly inadequate”.
3. Whether the Respondent or Arbitrator caused or contributed to the delay
- Neither the arbitrator nor OFY had caused or contributed to the State’s delay.
4. Whether the extension would cause the Respondent to suffer irremediable prejudice in addition to the mere loss of time
- Prejudice is not a necessary requirement for a refusal of an application to extend time (Daewoo Shipbuilding & Marine Engineering Co Ltd v Songa Offshore Equinox Ltd  EWHC 538 (Comm)).
5. How the extension would impact the progress and costs of the arbitration, if it is still ongoing
- The Award had disposed of all claims and counterclaims.
6. Strength of the application
- The court will not normally conduct a substantial investigations of the merits of the challenge application. However, if the court can readily see on the material before it that the challenge appears intrinsically weak, then that will be a factor, albeit not a primary factor, counting against the extension (Terna Bahrain v Bin Kamil  EWHC 3283). “Unless the challenge can be seen to be either strong or intrinsically weak on a brief perusal of the grounds, this will not be a factor which is treated as of weight in either direction on the application for an extension of time.”
- Butcher J found the present matter was “one of the relatively infrequently encountered cases in which the court can see on the present application that the grounds of the proposed challenge are intrinsically weak.”
7. Whether it would be unfair on the Applicant to deny them the opportunity to have the application determined.
- The judge’s view, having noted the above, was that there was no unfairness in denying the State an opportunity to have its application under s.68 Arbitration Act 1996 determined.
Consequently, the State’s application for an extension of time was dismissed.