Challenging an arbitral award for serious irregularity: recent developments

“No one likes losing.” As the authors of Redfern and Hunter on the Law and Practice of International Commercial Arbitration (6th edition) note in their opening words to their chapter on challenges to arbitral awards, a losing party will often look for ways to disturb what should be a final and binding determination of the dispute.

If, however, there has been a serious irregularity affecting the fairness of the arbitration, both the Arbitration Act 1996 (‘AA 1996’) in England and the UNICITRAL Model Law contain provisions allowing a limited right to challenge the award.

Three recent decisions in the English High Court dealing with challenges to arbitral awards on the grounds of serious irregularity arising out of the way in which the arbitral tribunal dealt with evidence and procedure provide an opportunity to re-visit the statutory framework for such challenges and the principles that are applied. In two of them, the challenge failed (Obrascon Huarte Lain SA (trading as OHL Internacional) and another company v Qatar Foundation for Education, Science and Community Development [2019] EWHC 2539 (Comm); ASA v TL [2020] 2270 (Comm)); in one of them (P v D [2019] EWHC 1277 (Comm), [2020] 1 All ER (Comm) 174), where a witness was not cross-examined about a central aspect of the case which led to a conclusion against a party, the challenge succeeded.

The statutory framework and principles

Section 33(1)(a) AA 1996 imposes a general duty on the tribunal to “act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent”. This duty applies, in particular, when conducting the proceedings themselves, in its decisions on matters of procedure and evidence, and in the exercise of all other powers conferred on it (AA 1996, section 33(2)). This mandatory provision is derived from the UNCITRAL Model Law, article 18 (“The parties shall be treated with equality and each party shall be given a full opportunity of presenting his case.”) Similar provisions are therefore found in jurisdictions that have adopted the Model Law either in whole or in part: for example, the wording of section 25 of the DIFC Arbitration Law No. 1 of 2008 mirrors article 18.

A party may apply to the court challenging an award “on the ground of serious irregularity affecting the tribunal, the proceedings or the award” under section 68(1) AA 1996. The grounds upon which a court may find serious irregularity are exhaustively listed in section 68(2), which also requires the court to find that the irregularity has “caused or will cause substantial injustice to the applicant”. A failure to comply with section 33 AA 1996 is one such ground under section 68(2)(a).

It has been repeatedly re-emphasised that a party seeking to rely on section 68(2)(a) faces a high hurdle to make out this ground. The Departmental Advisory Committee on Arbitration Law noted the criticism that under the Arbitration Act 1950 courts had intervened more than they possibly should have done in the arbitral process. In Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43, [2005] 3 All ER 789 at [27], it was commented by Lord Steyn that “The DAC observed about cl 68 that it ‘is really designed as a long stop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected’”.

While there is no precisely comparable provision in the Model Law, Article 34(2)(iv) also provides that an arbitral award may be set aside by the court if the party making the application furnishes proof that “the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Law from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Law”. Again, this provision is typically transposed into jurisdictions that have adopted the Model Law, for example in section 41(2)(a)(iv) of the DIFC Arbitration Law.

Both the AA 1996 and the Model Law require the arbitral tribunal to give each party a fair opportunity to present its case. The arbitral tribunal, therefore, must not decide a matter on a basis that has not been argued before it.

In a challenge made under the AA 1996, it is not appropriate, however, for the court to delve too deeply into the effect of any procedural failing. In particular, it should not ask whether, but for the default, the arbitral tribunal would have arrived at a different conclusion. In Vee Networks Ltd v Econet Wireless International Ltd [2005] 1 All ER (Comm) 303, Colman J at [90] stated that:

“Thus, where there has been an irregularity of procedure, it is enough if it is shown that it caused the arbitrator to reach a conclusion unfavourable to the applicant which, but for the irregularity, he might well never have reached, provided always that the opposite conclusion is at least reasonably arguable. Above all it is not normally appropriate for the court to try the material issue in order to ascertain whether substantial injustice has been caused. To do so would be an entirely inappropriate inroad into the autonomy of the arbitral process.”

The English court’s approach to an application under section 68 in a series of cases was recently usefully summarised by Carr J in Obrascon Huarte Lain SA (trading as OHL Internacional) and another company v Qatar Foundation for Education, Science and Community Development [2019] EWHC 2539 (Comm) at [45]:

“45. Determining whether or not the duty of fairness has been breached will always be a question of fact and sometimes degree. However, the relevant broad legal principles are un-controversial and can be summarised for present purposes as follows:

i) There will generally be a breach of s. 33 of the Act where a tribunal decides the case on the basis of a point which one party has not had a fair opportunity to deal with. It is not right that a decision should be based on specific matters which the parties have never had the chance to deal with, nor is it right that a party should first learn of adverse points in the decision against him;

ii) If a tribunal considers that the parties have missed the point and/or contemplates a completely different basis for a decision, the parties need to be given notice and a proper opportunity to consider the position and respond. This does not mean that every nuance or inference which the tribunal wishes to draw needs to be put to the parties if it differs from that which has been precisely contended for in the arbitration;

iii) A tribunal does not have to set out each step by which they reach their conclusion or deal with each point made by a party to an arbitration and a tribunal can deal with a number of issues in a composite disposal rather than address each issue seriatim;

iv) (Save possibly in exceptional cases) s. 68(2)(a) in referring to the general duty of fairness in s. 33 does not allow a party to contend that the tribunal has disregarded or overlooked a particular piece of evidence since that amounts to an assertion that the arbitrators made mistakes in their findings of primary fact or drew unsustainable inferences from the primary facts;

v) In determining whether there has been substantial injustice, the applicant does not need to show that the result would necessarily or even probably have been different. He simply has to show that the tribunal might well have reached a different view and produced a significantly different outcome. It is enough for the applicant to show that the arbitrator reached a conclusion unfavourable to him which, but for the irregularity, he might well never have reached, provided always that the opposite conclusion is reasonably arguable.”

In that case, Carr J rejected a challenge to an arbitral award under section 68(2)(a): the high threshold required to make out a successful application had not been met. At [97], she noted that notwithstanding the detail in the parties’ submissions, it was necessary to avoid “an unduly legalistic or minute textual analysis of the Award.” Instead, it had rejected one party’s interpretation of the Qatari Civil Code “in a manner which reflected the evidence and arguments canvassed at the hearing” ([98]).

The importance of cross examination

In P v D [2019] EWHC 1277 (Comm), [2020] 1 All ER (Comm) 174, the arbitrators found that, notwithstanding a ‘no oral modification’ clause, an estoppel had arisen which prevented D from demanding payment of loans due to it, but rejected P’s submission that there was either an agreement or estoppel extending the repayment date to January 2020. P applied under section 68(2)(a) AA 1996, arguing that there was no cross examination of a witness to the meeting in question; despite this, the arbitrators had made a finding against him.

Cross-examination forms an important part of common law civil procedure. If a party wants to suggest that another party’s witness is to be disbelieved, it is incumbent for that to be put to that witness in order to give them a fair opportunity to deal with the allegation: Browne v Dunn (1894) 6 R 67. In Markem Corporation v Zipher Ltd [2005] EWCA Civ 267, [2006] IP & T 102, at [56]ff, Jacob LJ reviewed this doctrine, noting that “procedural fairness not only to the parties but to the witnesses requires that if their evidence were to be disbelieved they must be given a fair opportunity to deal with the allegation”. The Privy Council re-affirmed the rule in respect of an appeal from the Eastern Caribbean Court of Appeal in Chen v Ng [2017] UKPC 27, [2017] 5 LRC 462. It was confirmed that the rule applied in relation to an application under section 68 in Bulfracht (Cyprus) Ltd v Boneset Shipping Co Ltd, The MV Pamphilos [2002] EWHC 2292 (Comm), [2002] 2 Lloyd's Rep 681 at 686. While an important rule, however, it is not inflexible: for example, it may not be possible, in the time available, to cross examine on every point, while a witness may be recalled to have the matter put to them: Edwards Lifesciences LLC v Boston Scientific Scimed Inc [2018] EWCA Civ 673, [2018] FSR 29.

In P v D, Sir Michael Burton, sitting as a Judge of the High Court, accepted that there had been no cross-examination on the core issue of whether there had been an agreement or understanding. He then went on to observe that in order to make out a section 68 challenge, it was not sufficient to make out serious irregularity: the Court also had to consider whether it had caused substantial injustice to the applicant. In this case, the witness did have a potential answer to the point that had been made. Sir Michael cited Colman J’s comments in Vee Networks, referred to above. At [39], he held that he could not possibly say that if the witness had not been properly cross-examined, there might have been a different outcome. As a result, the application under section 68 was allowed.

Acceptable inference or point not put to the parties?

In ASA v TL [2020] 2270 (Comm), the applicant submitted that the arbitrator had decided two important issues on the basis of points that it did not have a fair opportunity to deal with because they were not put forward by either party or their experts. The case involved the question of whether a particular cargo vessel was capable of transporting oil, which would have an effect on its rate of hire. The submission was that the arbitrator had decided that it was so capable, not from the expert or other evidence before her, but from her own reading of the class documentation for the vessel. It was submitted that it was not evidence, argument or analysis that either party had advanced, while the charterer’s expert had given unchallenged evidence that the publicly available documents supported the conclusion that the vessel should not be valued as one having the capability to carry such cargoes.

Sir Ross Cranston, sitting as a Judge of the High Court, rejected this submission. At [60], he held that the arbitrator was drawing a permissible inference on an issue that the charterers themselves had raised during the course of the hearing. It was not a case of the arbitrator using their own ‘special knowledge’. It was, instead, an example of where the point was not strictly argued or pleaded by the parties, but was “in play” or “in the arena” in the proceedings, citing Russell on Arbitration (24th edition), at para 8-092. At [64], the Judge went on to note that the court was not permitted to review the arbitrator’s assessment of the experts’ expertise under section 68.

Conclusion

The ultimate aim of a party referring a claim to arbitration is not to win the arbitration, but to secure an enforceable award in their favour. In conducting an arbitration, a party should be careful to ensure that the arbitral tribunal is given adequate assistance to achieve this goal. Parties should put their case clearly, so that each other party has a fair chance to present their case. A failure to do so could jeopardise the prospect of an enforceable award being rendered. While there may be different expectations as to the degree to which a witness should be cross examined or arguments flagged in advance, this basic level of fairness is common to both the AA 1996 and jurisdictions which have adopted the Model Law.

The English courts will be very slow to accede to an application under section 68 AA 1996. In the appropriate case, however, where there has been unfairness in the way that the arbitral tribunal has dealt with the evidence, such an application may well be successful.