The High Court has dismissed yet another challenge to an arbitration award under section 68 of the Arbitration Act (AA 1996) brought on the ground of serious irregularity. In this instance, a decision by a tribunal not to defer its award until further evidence was available did not amount to a breach of its general duty under section 33 of the AA 1996, because deferral may have resulted in delay over an indeterminate but potentially lengthy period. As the AA 1996 charges arbitrators with avoiding unnecessary delay in accordance with the object of arbitration (section 1), on balance, no irregularity within the meaning of section 68 was found.
Overview
In SCM Financial Overseas Ltd v Raga Establishment Ltd, the claimant argued that in issuing an award without awaiting the outcome of related Ukrainian court proceedings, the tribunal had failed to comply with its general duty of fairness under section 33 of the AA 1996. Further, that breach of section 33 (which constitutes an irregularity under section 68(2)(a) of the AA 1996) had caused substantial injustice to the claimant because the Ukrainian courts reached conclusions that were irreconcilable with those of the arbitrators.
In dismissing the claimant’s application, Males J held that the arbitrators were entitled to decide not to defer their award; that their decision was not unfair so as to constitute a breach of section 33; that there was therefore no irregularity within the meaning of section 68; and, accordingly, the additional requirement under section 68 for substantial injustice did not arise for consideration.
As well as drawing attention to a number of legal principles relevant to a section 68(2)(a) challenge, which will serve as useful and user-friendly guidance to parties and counsel alike, the judgment is of interest for the following reasons.
The relevance of related proceedings in another forum after the arbitral hearing
During closing submissions in the arbitration, the parties addressed the tribunal on the question: “To what extent should we take account of what may happen after the hearing in relation to the various proceedings and investigations in Ukraine?”
The claimant argued that the Ukrainian judgment was a potentially very important and highly relevant piece of evidence for the arbitrators to consider, going directly to some of the issues of law before them. The respondent took the position that the Ukrainian judgment was “utterly irrelevant” because the parties chose to have their dispute determined by arbitration and it could not be bound by the decision of a court in proceedings in which it was not a party.
Males J agreed that the Ukrainian court was not “better placed” than the tribunal to determine the issues because, as between the parties, it had been agreed that the arbitrators were the appropriate tribunal to do so. Nonetheless, contrary to the respondent’s submissions, the status of the Ukrainian judgment in the arbitration was not a question of preempting or undermining the parties’ choice of arbitration. Rather, it was about ensuring that relevant and important evidence was available to the parties’ chosen tribunal.
Hence, where related proceedings offer potentially important evidence, a tribunal may take account of those proceedings in its conclusions, even after the hearing, subject to its general duty under section 33 in conducting the arbitral proceedings (as discussed below).
Discretion, fairness and a misplaced desire for perfection
This judgment confirms that sections 33 and 68 are concerned, above all, with ensuring due process, rather than with whether the arbitrators have reached the right conclusion on the merits. This reflects the deference given by English procedural law to the parties’ choice of arbitration as the means to settle their disputes.
Fairness under section 33 is not an unduly demanding standard: a procedure may be fair even if it is not perfect. Consequently, when considering whether or not to mount a section 68(2)(a) challenge, a party should not become preoccupied with whether the procedure was flawless or the decision was “right”. The focus of any challenge that stands a reasonable chance of success must be on whether the arbitrators were entitled to reach their decision. In other words, was it fair?
Refusal to defer issue of an award as a breach of section 33 duties
Males J confirmed that a decision not to defer an award until further evidence is available is capable of amounting to a breach of section 33. Whether or not it does depends on all the circumstances of the case as at the date of the award, and must account for the tribunal’s wide discretion (under section 34 of the AA 1996) in matters of both procedure and evidence. Relevant circumstances are likely to include the nature, significance and availability of the evidence in question; the length of the delay that will result; and the likely prejudice to the party resisting deferral, weighed against that which might be suffered by the applicant.
As regards delay in particular, while unnecessary delay is to be avoided (see sections 1 and 33 of the AA 1996), delay may in fact be necessary to avoid unfairness. Since this conundrum can be a “tightrope” for arbitrators to walk, the court will support their decision provided they acted fairly.
The particular circumstances of the case should thus be considered carefully before making any application to the tribunal for deferral and, if such an application is refused, before raising a section 68(2)(a) challenge in the courts. Even if a party harbours doubts as to whether the tribunal got the decision right, where due consideration was given to the circumstances, it is likely that a court will reject the challenge out of respect for the arbitrators’ discretion.
The difference between unfairness by the arbitrators and mistake by the parties
In the underlying arbitration, one of the reasons given by the tribunal for not deferring their award was that there was no evidence before them as to the likely duration of the Ukrainian court proceedings, such that “[a]n adjournment may result in uncertainty over a lengthy period”. In the High Court proceedings, the claimant argued that if duration was an important factor in the tribunal’s decision, the arbitrators ought to have asked for such information. They did not. Had they done so, they would have been told that a decision would be handed down within a few months.
That submission was firmly rejected by Males J. Where, as here, duration is “a factor of obvious potential significance in deciding whether to defer the award”, experienced counsel is expected to proffer the information and the tribunal is entitled to assume that it has been provided with “whatever relevant information was available”. Following The Magdalena Oldendorff, there is no duty on a tribunal to ask for information from the parties unless it appreciates that a point is being missed.
It is therefore imperative for counsel to make detailed submissions and present all relevant evidence to the tribunal before the end of the hearing. In the context of a section 68 challenge relying on alleged breach of section 33, counsel will not be permitted to pass off its own oversights as unfairness on the part of the arbitrators.
When inconsistent decisions may amount to substantial injustice
Males J considered that “it is a risk inherent in the choice of arbitration that a party choosing to arbitrate is at risk of inconsistent decisions”. This issue will no doubt be familiar to practitioners, many of whom will have advised on the inclusion of often complex consolidation and joinder provisions in multi-party and multi-contract agreements in an attempt to mitigate against that very risk.
Should that risk materialise despite their best drafting efforts, practitioners should be aware that the court is unlikely to treat the inconsistent decision of a tribunal as giving rise to substantial injustice. As Males J said, the parties have elected to be “bound by the decision of their chosen tribunal, not the decision of some other court or tribunal”. Accordingly, something more is needed in order to constitute a substantial injustice.
That something need not be the tribunal having come to the wrong conclusion as a matter of fact or law. Rather, it is sufficient for counsel to show that, but for the irregularity, the tribunal “might well have reached another conclusion” (citing Vee Networks Ltd v Econet Wireless International Ltd).
The significance of a rather predictable decision
That this judgment upholds the high threshold for section 68 challenges, as first established by the House of Lords in Lesotho Highlands and in keeping with the AA 1996’s policy of limited intervention of the courts in the arbitral process, cannot come as any real surprise to practitioners. While it may well be disappointing for any parties (and their counsel) seeking out opportunities to challenge an unfavourable award, when viewed in the context of this policy it must be welcomed.
The recently published 2018 Queen Mary International Arbitration Survey not only identified London as the preferred seat of principal stakeholders in the arbitration community, it also indicated that London was preferred for its “formal legal structure”, including its national arbitration law, track record in enforcing arbitral awards and unhindered recourse to arbitration. The survey also noted that these qualities “seem to reflect an equally intrinsic, and therefore stable, nature that users look for and evaluate when selecting a seat”.
The well-established policy of limited intervention of the English courts evidenced by the decision in SCM Financial Overseas is thus likely to be one of the driving forces behind the dominance of London as a seat of arbitration.
