REUTERS | Toby Melville

Who should pay for serious irregularities in international arbitration?

The case of P v D, X & Y, heard in November 2017 but only recently published, concerned an application under section 68(2)(d) of the English Arbitration Act 1996 (AA 1996) in which P, the claimant in a London Court of International Arbitration (LCIA) arbitration, claimed that the failure of the tribunal to deal with an issue in the arbitral reference was a serious irregularity which had resulted in substantial injustice to the claimant, justifying remission of the award to the tribunal.

A question then arises: who should pay for the substantial injustice caused by the tribunal’s failure to consider a claim properly before it? The application before the Commercial Court had resulted in C being granted the relief it had sought. That application had been opposed by D2, although D2 failed to attend the hearing. D1 had attended the hearing but had played no active part in it and D1 stated that it was “neutral” as regards the merits of the application. The court ordered D2 to pay C’s costs of the section 68 application on well-established principles that the unsuccessful opponent of an application should pay the successful party’s costs.

Moving away from this case, and considering these rare situations more generally, what further costs might then be incurred? First, there are the costs involved in enforcing the costs order in the Commercial Court. Those costs ought, in principle, to be recoverable from the paying party. Secondly, having remitted the matter to the tribunal, most arbitral institutions will ask for a deposit against further fees of the tribunal. Thirdly, if the tribunal’s papers have been destroyed, a new bundle of documents for each arbitrator will have to be produced. The tribunal will have to reconstitute itself and will need to spend time considering the issue it missed, considering submissions and producing a fresh award on the remitted issue, or issues. On the one hand, the tribunal might expect to be paid for that additional work. On the other, it could surely properly be argued that the only reason there is any additional work is because the tribunal erroneously, and seriously, failed to deal with the issue or issues in the first place? In those circumstances, why should the party the court has found has suffered substantial injustice pay any further costs for the serious irregularity perpetrated by the tribunal?

Is it fair for the tribunal, or the arbitral institution to ask for further fees in those circumstances? Whilst the tribunal might fairly say that it could have added something to the costs in the original reference to consider a point which was before it and which should have been then considered, such costs would most likely have been very modest whilst the tribunal was already seized of the matter and whilst it was considering all of the issues.

Almost inevitably, by the time an article 27 (LCIA Rules) challenge has been made and considered, and a section 68 application made, heard and determined, a substantial amount of time is likely to have passed. Indeed, in P v D, the Phase 2 award, which was found to be subject to a serious irregularity, was dated 11 January 2017. An article 27 application was made to the tribunal within the time limit specified in the LCIA Rules. The dismissal of the article 27 application by the tribunal followed relatively shortly thereafter. The judgment in the Commercial Court which determined the section 68 application was handed down, on the day of the hearing, on 28 November 2017. That timetable is not surprising and is unlikely to be atypical. In those circumstances, it will surely take the tribunal members some time to read back into the case, familiarise themselves with the issues and then write an award to deal with the issue they missed the first time.

Could the tribunal simply reserve the costs and award them to whoever is the successful party on the remitted issue? A successful applicant before the court will have shown that the tribunal was in error, but on the remitted issue the tribunal (perhaps already slightly defensive in the light of the court’s findings) may determine the remitted issue against the applicant in any event. In those circumstances, perhaps costs should simply follow the event and the additional costs should be added to the bill of whomever loses the remitted issue?

However, having “won” a section 68 application, it seems iniquitous that the successful applicant should bear not only the risk of failing to recover the costs awarded by the court on the application, but then also have to pay for the tribunal to correct its own mistake, whatever the outcome of the remitted issue. If a lawyer had made a serious error which had caused substantial injustice (which often means “damage”) to a client, the lawyer would surely correct that mistake at his or her own expense, or would call upon professional indemnity insurers to make good any losses suffered by the client? In a time when tribunals are increasingly criticised for the fees which they charge for awards which have become terribly formulaic (an often massive and interminable recitation of each side’s arguments followed by very short reasons and a shorter dispositive section), surely the tribunal should also take responsibility for those few instances where a court has been convinced it has made a serious mistake, and offer to deal with a remitted issue without seeking to levy any further fees?

Quadrant Chambers Robert-Jan Temmink QC

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