Arbitration Award Challenge Under s68 of the Arbitration Act 1996

The English High Court has recently set aside an arbitration award for serious irregularity under s68(2)(a) of the Act in the case of RJ and another v HB [2018] EWHC 2833 (Comm).

Successful s68 challenges are rare, which is why this case is a useful demonstration of the very high threshold for setting aside an arbitral award. This year the English Commercial Court has released new figures on the number of claims for appeal/challenge of arbitral awards brought under ss68 and 69 of the Act for years 2015-2017.

Out of 112 challenges under s68 of the Act, only 1 was successful. Although the report does not reflected the most current statistics (i.e. there have been two recent successful challenges under s68 P v D [2017] EWHC 3273 (Comm) and Oldham v QBE Insurance (Europe) Ltd [2017] EWHC 3045 (Comm)), it is a reminder of the pro-arbitration stance of the English Courts.

 

The Arbitration

The dispute arose in respect of parties' obligations pursuant to merger arrangements for an investment by RJ in the banking sector. The parties agreed that RJ would lend US$75 million in exchange of a minority interest in a bank (Bank 2), in which HB would acquire a controlling interest. HB acquired Bank 2, as envisaged by the merger agreements, but there was no share transfer of the necessary shares to RJ. HB alleged that RJ and RJ's corporate vehicle (L Ltd) were in breach of an obligation to obtain, or reasonably diligently to seek to obtain, the regulatory approval needed to accept the transfer.

As a result, HB brought arbitration proceedings against RJ and L Ltd, seeking to force RJ to (at least) take required steps towards effecting the agreed share transfer. The sole arbitrator, jointly nominated by the parties and duly appointed by the Secretary-General of the ICC, rendered a final award, which among others declared that RJ is the beneficial owner of the shares in Bank 2.

 

The Challenge

RJ and L Ltd applied to the English Court to have the award set aside, on the basis that the decision declaring RJ to be the beneficial owner of the shares in Bank 2 was affected by a serious irregularity within s68 of the Act. The applicants also requested that the matters be determined afresh either by a new arbitrator or, in alternative, by the same arbitrator. RJ and L Ltd successfully argued that the relief granted, namely the declaration that RJ was the beneficial owner of the shares in Bank 2, had not been sought by any of the parties to the dispute. This was done without notice to the parties, depriving the parties from the opportunity to consider or to deal with this point.

 

Mr Justice Justice Andrew Baker commented that “the arbitrators' general duty of fairness under s.33 of the Act requires, that the parties be given notice and a proper opportunity to consider and respond to the new point.” The Court noted that “the procedure adopted by the Arbitrator in the preparation of the Final Award was somewhat unusual, although well within his procedural discretion”, however, the three brief exchanges about the beneficial ownership analysis during the oral closing submissions “did not do enough to put the parties on notice, fairly or at all, that the Arbitrator might be contemplating such a declaration”.

The Court found that the sole arbitrator had dealt with the dispute on a significantly different basis to the submissions of the parties, had failed to put parties on notice about that, and had therefore caused substantial injustice by denying parties the opportunity to address the possible outcome. As a result, parts of the award were set aside, however, the Court declined to remove the sole arbitrator. It was noted that in line with established case law concerning awards that have been set aside, but where “there has been no suggestion the arbitrators should no longer be trusted”, the arbitrator should not be substituted.

 

Comment

This case is a helpful demonstration of the limits of arbitrator's power to grant relief that the parties have not requested, particularly where they have not been given fair opportunity to share their views in this regard. It is also a reminder of the difficulty to remove an arbitrator, even where a party is able to establish serious irregularity and succeeds in remitting the award to the tribunal, or having it set aside. To find out how our Commercial Dispute Management team can help you click here.