In RAV Bahamas Ltd and Another v. Therapy Beach Club Incorporated[1], the judicial committee of the Privy Council[2] was saddled with the issue of interpreting the phrase “serious irregularity” pursuant to the provisions of section 90 of the Bahamas Arbitration Act 2009. In the aforementioned case, the Privy Council reversed the Bahamas Court of Appeal ruling on the ground of “serious irregularity”, the said Bahamas Court of Appeal, having upheld the arbitral award made by an arbitration tribunal in The Bahamas in a matter involving RAV Bahamas Ltd and Another and Therapy Beach Club Incorporated.

The question for determination before the Privy Council in the instant matter – was, in a nutshell, – “What was the correct interpretation or meaning of the phrase “serious irregularity”, as contained in the provisions of section 90 of the Bahamas Arbitration Act 2009 which, for all intents and purposes, is similar to and identical to section 68 of the English Arbitration Act 1996. The gravamen of the issue relating to section 90 of the Act was whether there should be a separate and express allegation, consideration and finding of substantial injustice for serious irregularity to be established.

Contextual Background

By a lease dated 31 December 2011, RAV leased certain land on the Island of Bimini in The Bahamas to Therapy for building and operation of a restaurant and beach club (together called the “Sankara Beach Club”). Clause 5 (t) of the aforesaid lease stipulated that the term of the lease shall be three years with an option to renew for a further three years in favour of the lessee, by giving six months’ notice and “subject to the parties agreeing to rents to apply to the renewal term”.

Furthermore, that pursuant to clause 2 (d) of the lease, Therapy was to pay $150,000 to RAV for the construction of the Sankara Beach Club which was to be completed within 120 days of the receipt of the payment.

Therapy alleged that, in breach of contract, the construction work was not properly completed and that they (Therapy) had to attempt to complete it at their own expense and that, up till July 2013, it was still not fully completed.

On 18 March 2013, RAV commenced proceedings against Therapy in the Supreme Court of The Bahamas in which they alleged that the lease was void, illegal and of no effect on the grounds that its terms violated the International Persons Landholding Act of The Bahamas. Prior to the determination of the issue by the Supreme Court, the Appellants unilaterally evicted the Respondent and even demolished the restaurant and club facilities, notwithstanding the fact that they took the law into their own hands in so doing. Subsequently, in his judgment dated 12 September 2013, the Supreme Court, per Barnett C J, rejected RAV’s claim that the lease was void, illegal and of no effect.

Following the eviction, however, the matter was referred to an arbitral tribunal, and an award of $9.67m was made as damages by the tribunal against the Appellants on 21 August 2017.

Pursuant to this award by the arbitral tribunal, the Appellants applied to challenge the arbitral award in the Supreme Court of The Bahamas on the basis of, inter alia, that the award was tainted by “serious irregularity” in terms of the provisions of section 90 of the 2009 Act – which deals with “serious irregularity”. The grounds distilled by the Appellants in their application before the Supreme Court were as follows:

  1. That the period for which the general damages for consequential loss of profits had been calculated should not have extended beyond the original term of the lease, which expired on 30 December 2014; and should not have included the three – year renewal period.
  2. That the arbitrator failed to deal with the issues presented during the arbitral hearing.
  3. Furthermore, that the arbitrator had acted unfairly in not affording the Appellants an opportunity to address certain adjustments which the arbitrator made in respect of the Respondent’s damages for consequential losses prior to the arbitral award.

These complaints in the Appellants’ challenge to the arbitral award succeeded in the Supreme Court of The Bahamas per Winder J who remitted the matter to the arbitrator, in part, for consideration of the general damages for consequential loss and at para 52, the learned justice directed that the arbitrator should – (i) permit RAV to make submissions on the proposed adjustments to the evidence of the expert witnesses’ projections prior to the arbitrator’s reconsideration of consequential damages award and (ii) consider the issue of whether the award could properly reflect any losses in the option or renewal period, on which the arbitrator was permitted to receive further submissions.

Suffice it to say that Winder J in the Supreme Court made no finding of any “serious irregularity” in relation to the arbitrator’s treatment of the exemplary damages claim, although in the learned Justice held in para 54 of his ruling, that the award must also be reconsidered since it was premised on the amount awarded as general damages.

Appeal before the Bahamas Court of Appeal

The Respondent (Therapy) appealed to the Court of Appeal of The Bahamas against the decision of Winder J of the Supreme Court of The Bahamas.

The Court of Appeal of The Bahamas, by a majority, allowed the appeal by the Respondent “Therapy” and ordered that Winder J’s remittal order be set aside and that the arbitration award be upheld.

The bases of the decision of the court of Appeal are that:

  1. The Supreme Court had not expressly and separately considered whether the irregularities found occasioned substantial injustice to the Appellant.
  2. The Appellants themselves had similarly failed to directly and separately bring before this Court submissions that the irregularities have resulted in or putting it another way, caused substantial damage to the Appellant.
  3. The real complaint made by RAV was that the arbitrator made errors of law in which case the challenge should have been brought by way of appeal on a point of law pursuant to section 91 of the 2009 Act and not under section 90 of the same Act.[3]

The Decision / Ruling of the Privy Council

Subsequent to the decision of the Court of Appeal of The Bahamas, an appeal was lodged to the Privy Council by the Appellant. The apposite question before the Board borders on “interpreting the phrase serious irregularity” in terms of the provision of section 90 of the Bahamas Arbitration Act 2009 which is similar to and identical with the extant provision of section 68 of the English Arbitration Act 1996. Putting it another way, what is “serious irregularity” under section 90 of the Bahamas Arbitration Act? The Privy Council noted the essential similarity of the two Acts and the imperative to have regard to the English authorities when interpreting materially identical or similar provisions. The Court in the circumstances adopted a teleological and purposive approach in dealing with the matter in context. In this regard, the Board observed that:

An important aim of the Acts was to be supportive of arbitration and to limit the intervention of the Courts……. And that a major purpose of the new Act was to reduce drastically the extent of intervention of Courts in the arbitral process.

More specifically, with respect to the relevant law, i.e., section 90 of the 2009 Act, the Privy Council held that “while it is good practice and should be encouraged, it is not a requirement of section 90 of the 2009 Act that there be a separate and express allegation, consideration and finding of substantial injustice.[4] It is sufficient that, as a matter of substance, substantial injustice be established and found”.

Reliance was placed on the decision of Secretary of State for the Home Department v. Raytheon Systems Ltd[5] where Akenhead J tersely observed that:

“(i) For the  purposes of meeting the “substantial injustice” test, an applicant need not show that it would have succeeded on the issue which the tribunal failed to deal or that the tribunal would have reached a conclusion favourable to him; it [is] necessary only for him to show that (i) his position was 'reasonably arguable’, and (ii) had the tribunal found in his favour, the tribunal might well have reached a different conclusion in its award…”

The Board considered that the arbitrator’s failure to look into the issues have caused serious irregularity to the Appellants and the same is not required to be brought or pleaded separately.[6] Furthermore, the Privy Council also held that the Board was in violation of the principle of due process by not giving the Appellants a full opportunity to be heard as the Respondents were only aware of the adjustments made and not the Appellants. The Board on these grounds held that there was serious irregularity on the part of the tribunal which led to severe injustice.

Conclusion and Effect of this Judgment

The instant judgment in RAV Bahamas by the Privy Council will bring clarity in the application of section 90 of the Bahamas Arbitration Act, 2009. It will also further clarify and strengthen the position of the English Arbitration Act, 1996 under section 68.

Furthermore, it was rightly pointed out by Lord Steyn in Lesotho Highlands Development Authority v. Impregilo SpA[7] that a “major purpose of the [1996] Act was to reduce drastically the extent of intervention of Courts in the arbitral process”. This principle has remained untouched for over a decade in the UK, but the current judgment in RAV Bahamas will strengthen the position of this doctrine. Lastly, it is important to assert that there will be substantial injustice only where it is established that, had the irregularity not occurred, the outcome of the arbitration might well have been different.

Summary

The case demonstrates clearly that one of the grounds of an arbitration award (decision) in terms of the provisions of section 90 of the Bahamas Arbitration Act 2009 is that the decision is tainted with “serious irregularity”.  But “serious irregularity” lacks sufficient definitional clarity.

Furthermore, procedural irregularity or impropriety will be deemed “serious irregularity” where it can be shown that the irregularity did not occasion substantial injustice to the other party in the arbitration proceeding. Thus, under section 90 of the Arbitration Act 2009, as previously adumbrated, judicial intervention in arbitral process is only possible where there is “serious irregularity, and “serious irregularity” in the context of the foregoing means an irregularity of one or more of the kinds listed in section 90 and must crucially be irregularity which the Court considers having occasioned (or caused) (or will cause) substantial injustice. Circumstances such as this are no doubt legion but in extreme case (s), where it could be said that the tribunal has gone so wrong in its conduct of the arbitration that justice necessitates or makes it imperative that its award be corrected, the Court will inexorably intervene.

Thus, the prerequisite to or the requirement for intervention as far as “serious irregularity” is concerned, is that the irregularity must “pass the test of” causing “substantial injustice” to the other party - and this is the crux of the matter in this appeal. Mere procedural irregularity or impropriety can hardly suffice in the circumstances. Authorities are legion on this.[8] In other words, a high threshold is required for establishing a serious irregularity.[9] .

In summary, it is beyond any cavil, in the opinion of the Board, that there was a “serious irregularity” in the arbitration proceeding and as the Privy Council stated:

“The arbitrator awarded damages for loss of profits over a six-year period, including the three-year renewal period. After adjustment, this amounted to $6.8 million. She made no reference to or ruling upon the lease renewal point. It cannot be inferred that she rejected the point in circumstances where she did not refer to it at all, still less provide any reasons for its rejection. She therefore failed to deal with an “issue” which had been “put to” her. Her failure to do so was an irregularity under section 90(2)(d).

Therefore, in the final analysis, the Board held that an irregularity, causing substantial injustice has, has a matter of substance, been established and found in terms of section 90 of the Bahamas Arbitration Act 2009.[10]