The English High Court recently dismissed a challenge to an arbitral award, holding that the tribunal’s alleged failure to take account of evidence did not amount to a serious irregularity under section 68 of the Arbitration Act 1996 (the Act).[i]
The Challenge Under Section 68 (Serious Irregularity)
Great Station Properties S.A. and others (Great Station) entered into a joint venture agreement and an option agreement with UMS Holdings Ltd and others (UMS). A dispute arose and, in the subsequent arbitration, Great Station alleged that UMS had diverted profits and opportunities to UMS-associated companies in breach of the joint venture agreement, causing damage of US$55.8 million. Great Station alleged also that it was entitled to US$250 million pursuant to a put option under the option agreement. Great Station succeeded on both claims.
UMS applied to the English High Court to set the award aside due to numerous alleged deficiencies that UMS claimed constituted serious irregularities within the meaning of section 68 of the Act. The relevant part of section 68 provides:
“[s]erious 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 section 33 (general duty of the tribunal [i.e., to act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent]); …
(d) failure by the tribunal to deal with all the issues that were put to it.”[ii]
Most notably, UMS claimed that the tribunal did not attempt to reconcile its conclusions with the witness and expert evidence submitted on behalf of UMS, and did not mention this evidence in the award. UMS also claimed that the tribunal failed to allow UMS an opportunity to respond to some of the issues in the case (including a claim for unjust enrichment that the tribunal raised of its own accord). UMS argued that whilst each of these failures amounted to a serious irregularity, each individual failure could also be aggregated to demonstrate that this was an exceptional case falling within the ambit of section 68. In summary, UMS alleged that there had been a “wholesale failure” of the tribunal to consider “large chunks of crucial evidence”.
Dismissing the challenge, Teare J held that, although an award must contain the reasons for the award (pursuant to section 52(4)), the award need not refer to the counter-arguments or competing evidence.
Teare J noted the following points in his dismissal:
- The tribunal’s duty is to decide the issues put before it, and to provide reasons in the award. This duty does not require the tribunal to refer to all the relevant evidence.
- Defective reasoning does not amount to serious irregularity. Section 68 is concerned with due process, not with whether the tribunal made the “right” decision.
- Allowing the section 68 challenge in this case would amount to the court trespassing into the tribunal’s exclusive remit, the tribunal holds responsibility for assessing and evaluating the evidence. If the court were to determine why the tribunal had not referred to a piece of evidence, the court would have to consider the entirety of the evidence, which would be “an impermissible exercise”.
- The fact that the tribunal consisted of former judges did not mean that the award would be held to a higher standard.
- The fact that the tribunal considered issues that neither party had raised (e.g., unjust enrichment), without asking the parties for submissions, did not amount to a serious irregularity as these issues did not form the basis of the award.
- Although the court can consider numerous irregularities together, no basis to aggregate all matters relied on for the purposes of section 68 is available.
- The court must strive to uphold arbitral awards. Only extremely narrow cases in which the tribunal has admitted a failure to take into account evidence may justify a challenge under section 68.
This UMS decision serves as a useful reminder of the very limited circumstances in which a claimant can bring a challenge to an award under section 68 . Teare J clarified that the tribunal’s failure to refer to evidence in an award does not amount to a serious irregularity, despite obiter comments suggesting this in earlier jurisprudence.[iii] Court intervention is not warranted if the tribunal reached a reasoned decision, even if the tribunal’s reasons are defective.