Article: P v D s. 68 AA 1996 application
By the time you read this the fateful day may well have passed (with or without a bong from Big Ben) and the UK will have left the EU. Brexit's effect on the desirability of England as a forum for the resolution of international disputes remains to be seen, (although English lawyers have on the whole been sanguine about it, pointing to London's prevailing status as a global centre of international arbitration and the sophistication and certainty conferred by the choice of English governing law).
In that context, the judgment of the English Commercial Court in P v D1, an arbitration claim made under sections 68 and 33 of the Arbitration Act 1996 (the Act), is timely. The decision (which will not be appealed) highlights the consequences for parties if they fail to interrogate fully opponent witnesses on key points of evidence, and for Tribunals of issuing awards inconsistent with unchallenged evidence or predicated upon a case that has not been advanced.
The decision brings certainty that, in English-seated arbitrations, witness testimony must be followed unless demonstrably contradicted by cogent alternative evidence or undermined in cross-examination (in accordance with the long-established principles set out in Browne v Dunn2. It is not safe for parties or Tribunals simply to reject that evidence out of hand or to rely only on inconsistencies with the documentary record.
P and D are parties to an offshore joint venture, through which they acquired shares in a West African listed energy company. The transaction was financed by US$730 million of loans made by D to P and to one of the joint venture companies, with short-term repayment dates.
P's case in the arbitration was that at meetings in August 2015 and November 2016, D orally agreed to postpone the repayment dates of the loans to 1 January 2018 and then to 1 January 2020, alternatively that D represented to P that it would not enforce repayment of the loans before those dates, giving rise to estoppels to that effect.
D denied that any oral agreement was made or that any estoppels were established. The key witnesses to the meetings in August 2015 and November 2016 were Mr E on behalf of P and Mr D on behalf of D.
At the hearing, P's principal, Mr E, to whom P alleged the representation giving rise to an estoppel as to the extension to 1 January 2020 was made at the August 2015 meeting by D's principal, was not cross-examined at all on his evidence of that meeting (despite prompting by the Tribunal), nor did the Tribunal question him on it. The closest that D's counsel came to challenging Mr E's evidence was to describe his account of the meetings as “nonsense”, which Mr E rejected.
In its Partial Award, and despite rejecting Mr E's evidence on behalf of D as unreliable, the Tribunal ignored Mr E's unchallenged evidence of the effect of the August 2015 meeting and held that P had failed to establish an agreed extension for repayment of the loans to 1 January 2020 and an estoppel such as would prevent D claiming repayment between 1 January 2018 and 1 January 2020.
P was unsatisfied with that conclusion and applied to the Tribunal under section 57 of the Act for clarification, in light of the fact that Mr E's evidence of the August 2015 meeting was unchallenged and unquestioned.
The Tribunal rejected P's application on two bases: that the agreement and shared assumption made at the August 2015 meeting were each contingent upon an agreement on a wider restructuring package that never concluded, and that the documentary trail was inconsistent with P having relied upon that promise or shared assumption (even if that point was not part of D's case nor was it ever put to Mr E).
Under sections 68 and 33 of the Act, a party may challenge an arbitral award if there has been a serious irregularity affecting the Tribunal, the proceedings or the award, which includes a failure to act fairly and impartially between the parties, and that serious irregularity causes a party substantial injustice.
P challenged the Tribunal's finding that there was no estoppel arising out of the August 2015 meeting in the English court under sections 68 and 33 of the Act on two grounds: first, that the ruling was inconsistent with the unchallenged evidence of Mr E; secondly, that the Tribunal's reasoning that any representation was part and parcel of an uncompleted restructuring was not a case that D had run, nor had it been put to P's witnesses.
D's pleaded case was that no extension of the loans to 1 January 2020 was ever agreed. The thrust of its argument in response to the challenge was that the Tribunal reached its finding on the August 2015 meeting on a number of grounds, not only Mr E's testimony, including the lack of documentary corroboration of his evidence.
The court first addressed the question of Mr E's testimony. It agreed with P that he had not been cross-examined or questioned by the Tribunal about the August 2015 meeting, nor had the allegation that any agreement was part of a wider, uncompleted restructuring been put to him:
“no case was put by [D's counsel] to [Mr E] by way of challenge or even questioning as to the events of August 2015 or the case pleaded in such strong terms in the Statement of Defence as set out above, as to whether there was such an agreement or representation or common assumption…[Mr E] did not, therefore, have any opportunity to defend his credibility, to answer questions as to inconsistencies or to deal with any suggestion about there only being an agreement in principle (if such case was being put)”
By extension, the court found that neither of the Tribunal's conclusions in the Award on the August 2015 meeting had been the subject of cross-examination. The court then considered P's case, finding that English law supported the propositions that where there is a challenge to a witness on a core issue of credibility, that issue should be put to the witness, otherwise the party challenging might be precluded from relying on its case on that issue; and that an arbitral tribunal cannot found its award against a party on a case not argued against that party. In short, it found in favour of P's case on both the grounds advanced.
Ordering the matter to be remitted to the Tribunal for re-consideration, the court concluded:
“This was not an easy position for the Arbitrators where, despite clear indications given to [D's counsel], he did not cross-examine, and where it seems that the Arbitrators favoured a case inconsistent with that being put forward by [D's counsel] and not put to Mr E or [P's counsel]. But I am satisfied that there was a breach of s33 by reference to both the grounds relied upon by [P's counsel], and allow the application under s68.”
Applications under s. 68 of the Act are subject to a high hurdle. As the Judge noted, they are “a long stop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected”.
This was an unusual case. It involved the Tribunal dismissing uncontested witness evidence that was never subject to cross-examination or other interrogation and rationalising that decision by reference to a case never argued. In ordering the Tribunal to look at the issue again, the English court has laid down a marker that such an approach amounts to a failure by the Tribunal to act fairly and impartially as between the parties.
Although this decision does not impose any new or onerous inhibitions upon tribunals and advocates, it is a reminder of the high standards of due process which are commonly observed in London-seated arbitrations (which had only been departed from in this case because of a number of unusual circumstances). P v D should be seen as a continuation and reinforcement of those high standards and an example of their application in practice; viewed in that light and against the backdrop of the broader discussion about the effect of Brexit, it should be welcomed as a decision which serves to enhance the credentials of London as a seat of arbitration in a post-Brexit world.