La Societe pour la Recherche La Production Le Transport La Transformation et la Commercialisation des Hydrocarbures SPA v Statoil Natural Gas LLC1

The claimant, Sonatrach, the Algerian state oil company, applied under section 68 of the Arbitration Act 1996 to set aside an ICC award dated 30 April 2013 made in favour of the defendant, Statoil, a subsidiary of the Norwegian state oil company.

Sonatrach also sought to challenge an earlier order of the court awarding Statoil post-award interest under the Judgments Act 1838 on the basis that the court did not have the power to do so when the tribunal had not provided for interest in its award.

The court dismissed both applications

Background

The underlying dispute arose from a number of contracts entered into in 2008 providing for the sale and purchase of liquefied natural gas between the parties. Statoil alleged that Sonatrach had failed to comply with its obligations and issued a Request for Arbitration. The arbitration took place in Lausanne and Paris before a tribunal consisting of three French and Swiss arbitrators: Prof. Pierre Tercier, Dr Wolfgang Peter and Prof. Charles Jarrosson but was seated in England and the English court had supervisory jurisdiction.

Sonatrach’s principal complaints were that the tribunal had failed to consider a critical piece of evidence (a letter from the Algerian Ministry of Energy and Mining) and that it had mischaracterised the evidence of two of Statoil’s witnesses. In its written application Sonatrach also alleged that the tribunal had improperly made use of an administrative secretary, although this point was not pursued before the court.

Decision

Section 68 of the Arbitration Act allows a party to apply to the court to challenge an award on the grounds of serious irregularity. Sonatrach relied on section 68(2)(a): failure by the tribunal to comply with its general duty under section 33 of the Arbitration Act (which requires the tribunal to act fairly between the parties and to adopt procedures suitable to the circumstances of the case). In a section 68 application, the court is concerned with procedural irregularities in the conduct of the arbitration, not the ultimate substantive finding: “the focus of the enquiry under section 68 is due process, not the correctness of the tribunal’s decision”2. This was particularly relevant in this case where the court found that, at its core, Sonatrach’s complaint was that the tribunal had got the wrong result, rather than that due process was not followed.

Sonatrach relied heavily on a passage in the judgment in Arduina Holdings BV v Celtic Resources Holdings plc which suggested that, in exceptional circumstances, the fact that a tribunal had failed to take any or proper consideration of the evidence before it could give rise to a challenge under section 68 if the tribunal “genuinely overlooked evidence that really mattered, or got the wrong end of the stick in misunderstanding it”3. That statement contrasts with the position set out in World Trade Corporation v C Czarnikov Sugar Ltd4, ie that failure to take into account evidence or a document said to be relevant to an issue is not to be regarded as failure to deal with an issue, but simply amounts to the tribunal making a mistake in its primary findings of fact.

The court disregarded Sonatrach’s argument based on the passage in Arduina Holdings, finding that the passage relied on was clearly obiter dicta, since the outcome of that case had been a finding that the applicant was engaged in an impermissible attack on the tribunal’s findings of fact. The case presented by Sonatrach would involve interference with the evaluation of the evidence by the tribunal, which is impermissible under section 68.

Even if, following Arduina Holdings, there had been scope to examine the tribunal’s factual findings in an “exceptional case”, the court held that this case was not “exceptional” and that on the facts the tribunal had not overlooked or mischaracterised relevant evidence. The section 68 challenge was therefore dismissed.

The court also considered the complaint regarding the tribunal’s use of an administrative secretary. Sonatrach’s application argued that the tribunal had improperly delegated authority to its secretary or had impermissibly allowed her to participate in deliberations. This was given extremely short shrift by the court, which stated that this was a very serious allegation that was completely without merit and should never have been made. The use of such secretaries is standard practice in ICC arbitrations and it is not unusual for them to produce notes to assist the tribunal, as in this case.

Interest

By an earlier order made in July 2013,  the court had granted Statoil permission under section 66 of the Arbitration Act to enforce the award in the same manner as a judgment and awarded interest at 8% under the Judgments Act 1838 on the damages and costs awarded by the tribunal from the date of the order until payment.

Sonatach argued that, as the tribunal had not awarded post-award interest, the court had  no power to do so. It referred to the judgment in Walker v Rome5 in which the arbitral tribunal had not awarded post-award interest and the court subsequently declined to award order interest under section 35A of the Supreme Court Act 1981.

The court acknowledged the decision in Walker v Rome but drew a distinction between that case, where the court was asked to award interest post-award but pre-judgment, and the present case, where judgment on an award has been entered under section 66 of the Arbitration Act 1996. In the latter case, the judgment has the same characteristics as any other judgment and interest runs under the Judgments Act until the date of payment. Sonatrach’s application on this point was therefore also dismissed.

Comment

The case confirms that the powers granted under section 68 of the Arbitration Act will be exercised very sparingly by the courts. A challenge under section 68 must meet  a very high hurdle and the vast majority of applications fail.

Applicants may be tempted to use section 68 as a way of indirectly challenging the court’s findings of fact but it is clear that that is a wholly inappropriate approach.  The court in this case referred to the DAC report, which makes it clear that section 68 is designed only to be used as a longstop in extreme cases where the tribunal’s conduct is so at fault that justice cannot be done if it is not corrected. Seeking to challenge particular findings of fact by the tribunal does not fall into that category.