The Arbitration Act 1996 – an overview of selected decisions in 2004 by Khawar Qureshi[1]

I will address two issues

(1) Serious irregularity – Section 68 of the 1996 Act (“Section 68”)

(2).Confidentiality

(1). SERIOUS IRREGULARITY.

Section 68 provides as follows:

68. - (1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.
A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).
(2) Serious 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 tribunal);
(b) the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67);
(c) failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties;
(d) failure by the tribunal to deal with all the issues that were put to it;
(e) any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award exceeding its powers;
(f) uncertainty or ambiguity as to the effect of the award;
(g) the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy;
(h) failure to comply with the requirements as to the form of the award; or
(i) any irregularity in the conduct of the proceedings or in the award which is admitted by the tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award.
(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may-
(a) remit the award to the tribunal, in whole or in part, for reconsideration,
(b) set the award aside in whole or in part, or
(c) declare the award to be of no effect, in whole or in part.
The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.
(4) The leave of the court is required for any appeal from a decision of the court under this section.

Section 33 states:

33. - (1) The tribunal shall-
(a) 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, and
(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.
(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it.

Readers will recall that the DAC in its report on the Arbitration Bill (at paragraph 280 thereof) described the jurisdiction to intervene on these grounds as a “long stop” which should only be invoked in extreme cases.

The irregularity must be (i) serious and the injustice caused by it (ii) substantial before the Court can properly intervene.

Decisions of the High Court (of which we are aware) are as follows;

(1).Margulead Ltd v. Exide Technologies ([2004] EWCH 1019 (Comm)) 6 May 2004, Comm. Ct., Colman J.

Agreement for construction of plant to extract lead from car batteries. Dispute went to arbitration. Award challenged under Section on the grounds that (i) the arbitrator failed to permit Counsel for the applicant to reply orally to closing submissions by Counsel for the respondents, and (ii) the arbitrator failed to consider an argument of affirmation of contract (which would have impacted upon the “mutual mistake” relied upon by the Respondent).

Held: There was no irregularity. The arbitrator had informed the parties of a procedure whereby it was clear that there was no provision for the applicant to have “the last word” – there was nothing wrong with that. This was consistent with Sections 33 and 34, so long as both parties were given a reasonable opportunity of presenting their case and dealing with that of their opponent. The arbitrators’ acceptance of the mutual mistake argument necessarily meant a rejection of the affirmation argument, albeit he gave no reasons in this regard. Hence he had dealt with the relevant issue (mutual mistake) without giving full reasons for his conclusions on that issue.

(2).Shuttari v. Solicitor’s Indemnity Fund ([2004] EWHC 1537 (Ch)), 21 May 2004, Ch. Div., Mr. Sher Q.C. sitting as Deputy Judge of the High Court.

Solicitor sued for negligence who was refused insurance cover by the SIF on the grounds that she had dishonestly certified good title to a property (there appeared to have been a mortgage fraud).

An arbitration took place between the Solicitor and the SIF. She failed to comply with several procedural orders and was late in serving evidence.

The Solicitor sought an adjournment and an extension of time to serve psychiatric evidence as to her state of mind at the time she certified title. Her application was refused.

Held: There had been no serious irregularity. There had been nothing to indicate what the evidence would have been or whether it would or could have shown that she had been so impaired that she did not know what she was doing. Accordingly, the question of “substantial injustice” did not arise.

(3).Westland Helicopters Ltd v. Sheikh Salah Al-Hejailan ([2004] EWHC 1625), 9 July 2004, Comm. Ct., Colman J.

A claim for a sum by way of legal fees on the basis of an annual retainer was upheld.

A further claim for interest which had earlier been abandoned was also pursued. The Applicant’s contention that the arbitrator had denied them the opportunity to address the issue of interest was rejected.

Held (inter alia): As no claim had been made for interest for the time period from 1986 to 1994, the arbitrator had no jurisdiction to award interest in this regard. However, Section 68 provided no relief in addition to that available under Section 67 of the 1996 Act (which the Judge duly applied).

(4).Tame Shipping Ltd v. Easy Navigation Ltd, ([2004] EWHC 1862 (Comm)), 28 July 2004, Moore-Bick J, Comm. Ct.

An arbitration award was rendered pursuant to the London Marine Arbitrator’s Association Small Claims Procedure. The parties expressly agreed to waive all rights of appeal. The dispute concerned the condition of a vessel within the context of a sale thereof.

The award contained no reasons. However, the arbitrator provided reasons separately stating that they did not form a part of the award and were provided on the understanding that no use whatsoever was made of them on or in connection with any proceedings related to the award.

The buyer challenged the award (i) decision based upon an argument in respect of no opportunity was provided to address the arbitrator (ii) failure to consider quantum related evidence

Held: It was not unusual for an arbitrator to provide reasons in this manner. Save in exceptional circumstances, the parties would be held to their contractual undertaking not to use the reasons in the context of proceedings related to the award (see The Ross Isle [1982] 2 Lloyd’s Rep. 589, and the Montan [1984] 1 Lloyd’s Rep. 389).

However, where a party asserted an irregularity of a really serious nature which will cause substantial injustice if the Court does not intervene, the Court has no alternative but to examine the relevant evidence – which includes the arbitrator’s reasons whether or not they are confidential, unless there is evidence from other sources that makes it unnecessary to do so or it can see that the allegation is groundless or there is some other exceptional reason for refusing to do so.

In the present case, His Lordship concluded that the grounds asserted were in reality improper attempts to challenge the arbitrator’s conclusion on a question of law (the meaning and effect of a contractual term) by way of an application under Section 68.

(5).St George’s Investment Co v. Gemini Consulting Ltd ([2004] EWHC 2353(Ch)), 8 October 2004, Ch. Div., H.H. Judge John Jarvis sitting as Deputy Judge of the High Court.

Rent review of premises at No. 1 Knightsbridge. Arbitrator applied a discount for the onerous features of the lease which neither party had advanced.

Held: The arbitrator made his calculations on a basis which was contrary to the agreed assumptions between the parties and which appears to confuse the two methodologies of valuation upon which he was addressed. This led to a serious irregularity which caused substantial injustice (resulted in, inter alia, double counting).

The Deputy Judge observed that the test of “substantial injustice” is intended to be applied by way of support of the arbitral process and not by way of interference with that process. It is only in those case where it can be said that what has happened was so far removed from what could reasonably be expected of the arbitral process that the Court will interfere. It is not a soft option to an application for leave to appeal.

(6).World Trade Co Ltd v. Czarnikow Sugar Ltd ([2004] EZHC 2332 (Comm)), 18 October 2004, Comm. Ct., Colman J.

Arbitration arising out of termination of a contract for the sale and supply of sugar. Asserted that the arbitrators had arrived at their conclusions against the weight of evidence and therefore failed to deal with all the issues before them.

Held: Section 68(2) was not engaged. The true complaint was not of a failure to address an issue but of the tribunal’s evaluation of the evidence before it in the course of determining an issue.

.

(7).Vee Networks Ltd v. Econet Wireless International Ltd ([2004] EWHC 2909

.(Comm)), 14 December 2004, Comm. Ct., Colman J.

Arbitration arising out of mobile telecommunications related agreement. Issues as to Bermudan law. Arbitrator construed the memorandum of the Claimant Bermudan company with reference to legal provisions which neither party had relied upon (argument as to whether the agreement was ultra vires).

Held (inter alia): The arbitrator had misunderstood the position of the Claimant. It was unnecessary and undesirable for the Court to express a view as to whether the arbitrator came to the right conclusion, even if by the wrong route, or whether, had he ignored the legal provisions, he should have reached the same or a different conclusion.

The question was not whether the conclusion the arbitrator reached was right or wrong – rather, whether he might well have reached another conclusion favourable to the applicant (provided that such a conclusion is reasonably arguable).

See also:

Torch Offshore LLC & Anr v. Cable Shipping Inc ([2004] EWCH 787 (Comm)), 7 April 2004, Comm. Ct., Cooke J.

Ronly Holdings Ltd v. JSC Zestafoni G. Nikoladze Ferroalloy Plant ([2004] EWHC 1354), 22 June 2004, Comm. Ct., Gross J.

Alphapoint Shipping Ltd v. Rotem Amfert Negev Ltd ([2004] EWHC 2232 (Comm)), 8 October 2004, Comm. Ct., Colman J.

Newfield Construction Ltd v. John Lawton Tomlinson and Anr ([2004] EWHC 3051 (TCC)), 10 November 2004, T.C.C., H.H. Judge Peter Coulson Q.C.

(2).Confidentiality and arbitration.

Issues:

(1).Should there be a statutory provision dealing with confidentiality in the arbitration context?

(2).Should the blanket of confidentiality extend in general to arbitration applications before the Court?

The rationale for confidentiality in the arbitral context.

1.The main advantages of arbitration as perceived by the parties resorting to this process are;

  • Speed
  • Informality
  • Finality
  • Privacy and confidentiality

2.When parties assemble for the arbitration hearing, it has been the accepted practice for hundreds of years that the process takes place in private (see the comments of Coleman J. in this regard in the case of Hassneh Insurance v. Mew [1993] 2 Lloyd’s Rep. 243).

3.Likewise, it has been a generally held view that all parties to the arbitral process (including the arbitrators, Counsel and witnesses) are bound by a duty of confidentiality not to disclose information which comes into their possession as a result of the arbitration process.

4.Three broad exceptions to this principle which permit disclosure of such information arise in the following circumstances;

  • With the express or implied consent of the party who originally produced the material
  • By order of the Court, to the extent that it may be necessary for the establishment or protection of a party’s legal right’s vis-à-vis a third party, or otherwise in the interests of justice
  • In the case of material deployed before the Court in proceedings concerning the arbitration

Confidentiality and the Arbitration Award.

5.In the case of Associated Electric and Gas Insurance Service Ltd (“Aegis”) v. European Reinsurance Co of Zurich (“Euro”) [2003] 1 WLR 1041 (29th January 2003) (“the Aegis case”), The Privy Council considered an appeal by Aegis from a decision of the Court of Appeal in Bermuda.

6.The appeal raised the issue of whether an express confidentiality agreement relating to an earlier arbitration between two parties had the effect of preventing one of those parties referring to the earlier award, in a later arbitration between them.

7.The Court of Appeal of Bermuda had discharged an injunction obtained by Aegis to prevent Euro from relying upon or referring to the earlier award. The two disputes between the parties which were the subject of the arbitrations concerned the obligation of Euro to indemnify Aegis pursuant to a reinsurance agreement.

8.Aegis relied upon the common law (as reflected in the decision of the Court of Appeal in the case of Dolling-Baker v. Merret [1990] 1 WLR 1205), and an express confidentiality agreement in the earlier arbitration to contend that Euro could not rely upon or refer to the earlier award.

9.The confidentiality provision, stated, inter alia;

“The parties, their lawyers, and the court of arbitration agree as a general principle to maintain the privacy and confidentiality of the arbitration. In particular… the arbitration result will not be disclosed at any time to any individual or entity, in whole or in part, which is not a party to the arbitration between Aegis and [Euro]”..”

10.Lord Hobhouse delivered the judgment of their Lordships and considered the rationale for the duty of confidentialty, as well as the essential purpose of arbitration, namely to determine disputes between parties to the arbitration in a manner which did not entail the actual or potential disclosure of information to persons with interests adverse to the parties. (Contrast with the approach of the Court of Appeal in the case of Ali Shipping Corpn v. Shipyard Trogir [1999] 1 WLR 314 – referred to at paragraph 20 of the Aegis Judgment)

11.In that regard their Lordships held that the legitimate use of the earlier award in a later private arbitration between the same parties would not raise the mischief against which the express confidentiality provision, upon its true and proper construction, was directed. That was the risk of valuable information reaching third parties with interests adverse to one of the arbitrating parties.

12.Furthermore, their Lordships held that to prohibit any disclosure of the award would frustrate a fundamental purpose of the arbitration, by preventing the winner enforcing the rights declared in its favour. That in turn would also constitute a breach of the loser’s duty to perform the award by recognising and respecting those rights. Moreover, in enforcing such an award, the winner could properly rely upon the earlier award to invoke the doctrine of issue estoppel in a later arbitration between the same parties.

Confidentiality and the Court process – the Moscow City case.

13.A recent decision of the Court of Appeal in the case of Department of Economic Policy and Development of the City of Moscow and another v. Bankers Trust and another [2004] EWCA CIV 314 (25th March 2004) (“The Moscow City case”) raises issues of potentially far reaching significance vis-à-vis the public nature of judgments and orders pronounced by the English Courts in the context of arbitration applications.

  1. In essence, Banks had advanced monies to borrowers in Moscow. The Banks contended that the borrowers had defaulted, this was disputed by the borrowers – the matter went to arbitration. The Banks lost, they appealed to the Court against the arbitrators award invoking Section 68 of the Act. They lost.
  1. The issue that arose was whether Cooke J’s judgment or a Lexis summary thereof should remain confidential between the parties. Cooke J ruled that they should. In the Court of Appeal, Mance LJ gave the lead judgment in which a very detailed review of case law concerning judgments rendered in private and shrouded by a requirement of non-publication were considered.
  1. Referring to the reasons of privacy and confidentiality which are perceived to underpin the choice of arbitration, Mance LJ noted that CPR 62.10 (which provides that hearings of an arbitration claim may be in public or private) was simply a starting point. His Lordship observed (at paragraph 34 of the Judgment) as follows;

“…The courts when called upon to exercise the supervisory role assigned to them under the [Act] are acting as a branch of the state,not as a mere extension of the consensual arbitral process. Nevertheless, they are acting in the public interest to facilitate the fairness and wel-being of a consensual method of dispute resolution, and both the Rule Committee and the courts can still take into account the parties’ expectations regarding privacy and confidentiality when agreeing to arbitrate..”

  1. At paragraph 36 of the Judgment, Lord Justice Mance distinguished between those matters which required permission to appeal (such as pursuant to Section 69) – where the starting point (as per the Rule Committee) was to treat the public interest in a public hearing as outweighing any wish on the parties’ part for continuing privacy and confidentiality. In the case of other arbitration claims, the starting point was reversed.
  1. In that case, the Court of Appeal upheld the Judge’s decision not to permit publication of his Judgment, but allowed the appeal against the refusal to allow publication of the Lawtel summary.
  1. For a recent illustration of the Court’s approach to confidentiality of an arbitration award in the context of a freezing order sought and obtained against an individual who was being sued personally for misrepresentation claims as an officer of a company which had been the subject of an arbitration award against it see; Dadourian Group v. Simms and others [13/5/04] (CA) (Dyson LJ).

18th January 2005

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[1] Khawar Qureshi is an “A” panel Treasury Counsel who practices in Commercial, International and Public Law at Serle Court, Lincoln’s Inn. He has extensive experience of international arbitrations and applications brought under the Arbitration Act 1996.