In RAV Bahamas Ltd & Bimini Bay Resort Management Limited v Therapy Beach Club Incorporated [2021] UKPC 8, the Judicial Committee of the Privy Council (which is the court of final appeal for the UK overseas territories and Crown dependencies, and for certain Commonwealth countries) considered a challenge to an arbitral award on the basis of “serious irregularity”, under s.90 of the Bahamas Arbitration Act 2009 (the Act). That provision is materially identical to s.4 of Schedule 2 of Hong Kong’s Arbitration Ordinance (Cap 609) and so will be of interest in relation to Hong Kong seated arbitrations and the interpretation of the Hong Kong provisions. The Privy Council held that, while it is good practice and should be encouraged, it is not a requirement of s.90 of the Act that there be a separate and express allegation, consideration and finding of substantial injustice. It is sufficient that, as a matter of substance, substantial injustice be established and found.

Section 90 of the Bahamas Arbitration Act 2009

S.90 of the Act provides that a party to arbitral proceedings may apply to the court challenging an award in the proceedings on the ground of serious irregularity, affecting the tribunal, the proceedings or the award. S.90(2) provides that “serious irregularity” means an irregularity of one or more of the following kinds, which the court considers has caused or will cause substantial injustice to the applicant:

(a) failure by the tribunal to comply with s.44 of the Act i.e. its general duty (e.g. to act fairly and impartially and give each party a reasonable opportunity to put his case and deal with that of his opponent);

(b) the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction);

(c) failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties;

(d) failure by the tribunal to deal with all the issues that were put to it;

(e) any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award exceeding its powers;

(f) uncertainty or ambiguity as to the effect of the award;

(g) the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy;

(h) failure to comply with the requirements as to the form of the award; or

(i) any irregularity in the conduct of the proceedings or in the award which is admitted by the tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award.

Background

A dispute had arisen between the parties in relation to the lease by RAV to Therapy of land for the building and operation of a beach club. By an “ad hoc” arbitration agreement, the parties’ dispute was referred to arbitration and an arbitral award was made in Therapy’s favour. RAV successfully challenged the arbitration award in the Supreme Court of the Bahamas on the grounds, amongst others, of “serious irregularity” under s.90 of the Act, in that the arbitrator had failed:

  • to deal with certain issues put to her (s.90(2)(d)); and
  • had failed to give RAV a fair opportunity to address certain issues regarding the calculation of damages (s.90(2)(a)).

The Supreme Court remitted the award back to the arbitrator for further consideration. However, the Court of Appeal reversed that decision and upheld the arbitral award, on the basis that the Supreme Court judge had not expressly and separately considered and found that substantial injustice had been caused to RAV by the irregularity that he had found and RAV had failed expressly and separately to plead (in its notice of motion) and establish any such injustice.

Privy Council’s findings

The main issue before the Privy Council was one of interpretation, namely whether s.90 of the Act requires there to be a separate and express allegation by the applicant and separate consideration and finding of substantial injustice by the court, for a serious irregularity to be established.

The Privy Council found as follows:

  • The test of serious irregularity imposes a “high threshold” or “high hurdle”. In order to cross that threshold, the applicant needs to show both that there has been an irregularity of one or more of the kinds listed in s.90 and that that has caused or will cause substantial injustice to the applicant.
  • The focus is on due process, not the correctness of the decision reached.
  • Even if a case is shown to fall within one or more of the kinds of irregularities listed in s.90, this will only amount to a serious irregularity if the court considers that it “has caused or will cause substantial injustice”. This means more than some injustice.
  • There will be substantial injustice where it is established that, had the irregularity not occurred, the outcome of the arbitration might well have been different.
  • Some irregularities may be so serious that substantial justice is “inherently likely” or “likely in the very nature of things” to result. In such cases, substantial injustice may be inferred from the nature of the irregularity and that inference may be so strong that it almost “goes without saying”.
  • In general, there will, however, be no substantial injustice if it can be shown that the outcome of the arbitration would have been the same regardless of the irregularity.

The Privy Council held that it is good practice for an applicant challenging an arbitration award under s.90 to set out in its notice of motion, or other originating document, both (i) the listed irregularity in s.90 relied upon and the grounds for contending that there has been such an irregularity; and (ii) that the irregularity has caused or will cause substantial injustice and any written evidence relied upon should be provided at the same time. The Privy Council held that it is also good practice for the judge determining the s.90 application to deal expressly and separately with each of the elements of what constitutes a serious irregularity. However this is good practice, the Privy Council said, and is not a mandatory requirement of s.90, such that an application would fail if such practice is not followed. It is sufficient that, as a matter of substance, substantial injustice be established and found. In this case, the Privy Council was satisfied that as a matter of substance, substantial injustice had been both established and found and it did not make any difference that there had not been an express and separate allegation, consideration and finding of substantial injustice. In this context, it said, substance is more important than form and undue formalism should not be required.

Comments

The above ruling of the Privy Council may be useful in challenging an arbitral award on the ground of serious irregularity under Schedule 2 of the Arbitration Ordinance. However, it should be noted that Schedule 2 is only applicable if it has been opted into by the parties when entering into the arbitration agreement.