A rare example of the English High Court varying an arbitral award.

In Dakshu Patel v. Kesha Patel [2019] EWHC 298 (Ch), the English High Court upheld an appeal under section 69 of the Arbitration Act 1996 (the Act) against an arbitral award. The court concluded that the tribunal had erred in law in finding that there had been a variation of the profit-sharing provisions of two partnership agreements. The court also indicated that a related section 68 challenge would have succeeded (had it been necessary to decide the point). The court varied the award and held that the parties were entitled to share the profits and losses equally under the partnership agreements.

The case highlights the very high threshold for permission to appeal an award, and is a rare example of an appeal under section 69 succeeding in the English courts. On the facts, there was no conduct or agreement that could be interpreted as a variation. While courts do not usually interfere in the arbitration process, the tribunal had reached what the court described as a “very surprising conclusion” that warranted intervention.

Background

The claimant and the defendant were both dentists, and the defendant was formerly married to the claimant’s nephew. The claimant and the defendant entered into two partnership agreements in relation to a dental practice in Purley and a dental practice in Mitcham. Under the terms of the partnership agreements, profits and losses were to be shared equally. It was also the intention that the claimant would not carry out any dental work at either practice and that the defendant would carry out the day-to-day running of both dental practices.

However, during the first two years of operation, 100% of the profits of the Purley practice were allocated to the defendant, without prior discussion. The claimant simply communicated this arrangement to the partnership accountant and both parties then signed the relevant accounts.

In 2015, the defendant and the claimant’s nephew separated. Subsequently, during completion of the next set of accounts for the Purley partnership, the claimant refused to allocate 100% of the profits to the defendant as had happened previously. The ensuing dispute was then referred to arbitration.

The Arbitration

The central issue for the tribunal was whether there had been a course of dealing between the parties, falling within section 19 of the Partnership Act 1890, that had varied the provisions on profit allocation in the partnership agreements.

With respect to the Purley practice, the tribunal held that the partnership agreement had been varied by a course of dealing evidenced by both parties signing the partnership accounts, which allocated 100% of the profits to the defendant for two years. Accordingly, the shares of profits and losses for the Purley practice were 100% for the defendant and 0% for the claimant.

The tribunal also held that the shares of profits and losses for the Mitcham practice had been varied, with 35% for the claimant and 65% for the defendant. Following a request for clarification pursuant to section 57(3)(a) of the Act, the tribunal referred to evidence that arose during cross examination and held that the claimant had accepted that the defendant should receive more profits for both practices due to her endeavours in running those practices.

The Court’s Decision

The claimant appealed the tribunal’s decision in relation to the Purley practice under section 69 of the Act, on the basis that the tribunal had erred in law in concluding that the relevant partnership agreement had been varied.

The claimant also challenged the tribunal’s decision with respect to the Mitcham practice under section 68 of the Act, alleging a serious procedural irregularity on the basis that the tribunal had reached a decision on evidence that the defendant never advanced. In addition, the claimant appealed the tribunal’s decision with respect to the Mitcham practice under section 69 of the Act, on the basis that the tribunal had concluded that the evidence given could amount to a variation of the partnership agreement.

The claimant succeeded on its appeals under section 69 of the Act in relation to both partnership agreements.

Purley practice

The court concluded that it was “clear” that the tribunal had wrongly overlooked the relevant test for section 19 of the Partnership Act 1890 — the need for clear and unambiguous conduct evincing an intention to vary the contractual terms. The fact that the defendant received 100% of the profits in two accounting periods could only amount to a waiver of the claimant’s profit entitlement for those two periods. The court also found that the tribunal had overlooked the fact that, even if the claimant’s conduct had been sufficient, there was no consideration for the variation and the partnership agreement required variations to be in writing and executed as a deed.

Mitcham practice

As regards the Mitcham practice, the court concluded that it was “obvious” that what the claimant had said under cross-examination “could not possibly be interpreted as an offer to alter the existing written partnership agreement”. Accordingly, there was no conduct or agreement that as a matter of law could amount to a variation. The tribunal had again erred in law.

Finally, although the court did not need to consider section 68, having found that the appeals under section 69 had already succeeded, in obiter the court noted that the tribunal had committed a serious irregularity by failing to raise with the parties the purported basis for the variation and permitting submissions on this variation. The tribunal had not given the claimant a fair opportunity to address the point that was taken against him, contrary to section 33 of the Act.

The judge therefore concluded that the partnership agreements had not been varied. Rather than remit the matter back to the tribunal, the court varied the award to reflect the equal share in the profits.