A recent decision of the English courts has confirmed the high threshold they apply when considering applications to set aside arbitral awards.
SCM Financial Overseas Ltd v Raga Establishment Ltd1 concerned a dispute arising from a Share Purchase Agreement (SPA). The defendant, Raga, was the owner of UA Telecominvest Limited (UAT) which in turn owned ESU (ESU). ESU in turn owned 92.7 percent of the shares in Ukrtelecom (Urktelecom), a Ukranian telephone operator which was owned by the State Property Fund of Ukraine (SPFU) until its privatisation in 2011. The privatisation was effected pursuant to an agreement between the SPFU and ESU (Privatisation Agreement). Under the SPA, Raga sold its shares in UAT to the claimant (SCM) for approximately US$860 million, payable in three instalments. Raga alleged that the second and third instalments were not paid by SCM.
The SPA was governed by English law and contained an arbitration clause providing for London-seated arbitration in accordance with the LCIA Rules. Raga commenced LCIA arbitration proceedings against SCM in June 2016 claiming the unpaid instalments of the SPA purchase price. SCM counterclaimed for the recovery of the first instalment under the SPA, arguing that the shares in UAT would be confiscated by the Ukrainian State as Raga had breached its obligations under the Privatisation Agreement. SPFU then filed separate proceedings against ESU in the Ukrainian Courts seeking return of the Ukrtelecom Shares. SCM subsequently requested that the LCIA tribunal defer issuing its award pending the findings of the Ukrainian Court in SPFU's action. Raga resisted the deferment on the grounds that the Ukrainian action was irrelevant to resolution of the arbitration.
On 26 June 2017 the tribunal rendered a Partial Final Award which comprehensively rejected SCM's case and found in favour of Raga. The Ukrainian Court later found that ESU had breached the Privatisation Agreement and ordered the confiscation of SCM's shares in UAT.
Section 68 application
SCM applied in the English High court to set aside the arbitral award on the basis of serious irregularity under section 68 of the Arbitration Act 1996 (Act). The Court rejected the application, holding that the tribunal's decision not to defer the award was not so unfair as to breach its general duty under the Act and so was not capable of being set aside pursuant to section 68 of the Act. In reaching this decision the Court held that:
- The Ukrainian Court was not necessarily better placed than the arbitrators to determine the issues between the parties
- While a decision not to defer an award until further evidence is available could in theory constitute a breach of arbitrator's duties under section 33 of the Act, it will depend on the circumstances of the case including, inter alia, the nature and significance of the evidence in question, the likelihood of evidence becoming available, the length of potential delay and any prejudice to a party arising from that delay
- When considering whether an arbitrator has breached its general duty, the above factors must be considered as at the date of the award. What transpires after the award has been published is irrelevant to the question of irregularity
This decision again demonstrates the high test an applicant will be required to meet in seeking to challenge an arbitral award on the basis of section 68 of the Act. Statistics released by the English courts support the notion that challenges to arbitral awards under section 68 rarely succeed (a recent article on the same is available here). The decision also the underscored the reluctance of the English courts to interfere with arbitrators managing proceedings as they deem appropriate, even where there is a risk of inconsistent decisions.
A copy of the court's decision is available here.
For more information please contact firstname.lastname@example.org.
1 EWHC 1008 (Comm).