The England and Wales High Court (Commercial Court) recently disposed of an application by a party to an arbitration to set aside the arbitral award on the grounds of inadequate reasons.
The Court dismissed the application in Islamic Republic of Pakistan & Anor v Broadsheet LLC , finding that this was not a sufficient basis to set aside an arbitral award pursuant to the Arbitration Act1996 (the “Act”).
In short, inadequate reasons do not rise to the level of a “serious irregularity” in an arbitral award.
This decision is further evidence of the primacy of arbitration and courts’ reluctance to interfere in arbitral awards, specifically where the grounds to set aside those awards are narrowly constructed in the governing legislation.
Broadsheet LLC [“Broadsheet”], a company incorporated in the Isle of Man, commenced an arbitration against the State of Pakistan [“Pakistan”] and the National Accountability Bureau (“Anor”), alleging a breach of contract
In 2016 the arbitral tribunal released its award on liability. Two years later, it released its award on damages.
The tribunal awarded Broadsheet US $21,589,460 plus interest as damages for the breach and repudiation of contract.
Pakistan and Anor commenced an application to set aside the arbitral award under Section 68(2)(d) of the Act, alleging inadequate reasons amounted to a “serious irregularity” that resulted in a substantial injustice.
The Court addressed whether “inadequate reasons” were a ground to set aside an award, and when “inadequate reasons” amounted to a serious irregularity and a substantial injustice.
Section 68 of the Act states that a party to an arbitration may apply to the Court to set aside an award on the ground of “serious irregularity affecting the tribunal, the proceedings or the award.”
Section 68 imposes a high hurdle for applicants. There will only be a “serious irregularity” if what has occurred is “far removed from what could reasonably be expected from the arbitral process”, and that the requirement of “substantial injustice” is additional to that of serious irregularity. Furthermore, courts have repeatedly stressed the importance of upholding arbitral awards.
Regarding whether inadequate reasons were grounds to challenge an arbitral award under Sections 68(2)(c) and/or (h), the Court agreed with UMS Holding Ltd v Great Station Properties SA [“UMS”], which held that:
[…] section 68 is concerned with due process. Section 68 is not concerned with whether the tribunal has made the "right" finding of fact, any more than it is concerned with whether the tribunal has made the "right" decision in law. The suggestion that it is a serious irregularity to fail to deal with certain evidence ignores that principle. By choosing to resolve disputes by arbitration the parties clothe the tribunal with jurisdiction to make a "wrong" finding of fact."
Furthermore, the Court noted that while dealing with a different part of Section 68, the court’s reasoning in Margulead v Exide Technologies had wider application when it held that:
A deficiency of reasons in a reasoned award is not capable of amounting to a serious irregularity within the meaning of Section 68 of 1996 Act unless it amounts to a "failure by the tribunal to deal with all the issues that were put to it" […]
The Court also held that the judgement of the High Court in ABB v Hochtief Airport supported the view that “inadequate” reasons do not amount to a serious irregularity within the meaning of Section 68. In that decision, the Court held that “it is not for this court to tell an international commercial tribunal how to set out its award or the reasons therefor.”
Furthermore, the Court warned that ordering further explanation would require the review of findings of fact and the evaluation of evidence by the tribunal; this “would be contrary to the limited role for the courts given by the Act.”
As such, the Court held that the following principles referred to in UMS regarding Sections 68(2)(a) and (d) were equally applicable to Sections 68(2)(c) and (h):
i) Section 68 is concerned with "due process" and not with whether the tribunal has made the "right" decision;
ii) In order for a court to assess the adequacy of reasons, the court would have to evaluate the evidence and the assessment of evidence is for the tribunal as the sole judge of fact; and
iii) Scrutiny of a tribunal's reasons would amount to supervision by the court over arbitrations which would frustrate one of the principal purposes of the Act which was to limit the court's intervention in arbitration.
Regarding whether “adequate” reasons were given, the Court held that any alleged failure must be considered in the light of the general approach of the courts in reviewing arbitration awards. Specifically, the Court noted:
i) That the purpose of the Act was to reduce drastically the extent of intervention of courts in the arbitral process;
ii) It is not a ground for intervention that the court might have done things differently or expressed its conclusions at greater length;
iii) The tribunal has to give reasons for the decisions on the essential issues but does not have to deal with each point made by a party in relation to those essential issues or refer to all the relevant evidence.
Finally, notwithstanding its conclusions for the first two issues, the Court considered whether “inadequate reasons” would amount to a serious irregularity and a substantial injustice. The claimants argued that a failure to provide adequate reasons may be capable of creating a substantial injustice, otherwise there would be no recourse at all.
The Court held that even if further explanation was required, and even if that were a “serious irregularity,” there was no substantial injustice given the clear statement of the tribunal in the ruling regarding the lack of specific evidence and the inevitability of some form of overall assessment.
Implications in Canada
Canadian provinces and territories have generally adopted the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration (the “UNCITRAL Model Law”) into their respective international commercial arbitration statutes. The UNCITRAL Model Law provides very narrow grounds to set aside an arbitral award.
Parties seeking to set aside an arbitral award in Canada have limited grounds to do so. Certainly, inadequate reasons is not one of those grounds. Consistent with the decision described above, Canadian courts generally take a hands-off approach and do not look to supervise arbitral tribunals.