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In Islamic Republic of Pakistan and Ors v Broadsheet LLC [2019] EWHC 1832 (Comm), the English High Court dismissed an application made under section 68 of the Arbitration Act, 1996 (the “Act”), holding that insufficient reasoning by arbitrators in their award does not amount to a serious irregularity under section 68(2)(c) or (h) of the Act.
Section 68 allows for a party to apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award. Serious irregularity means an irregularity which the court considers has caused or will cause substantial injustice to the applicant.
Background
The defendant (“Broadsheet LLC”) was engaged by the first and second claimant (“Islamic Republic of Pakistan” and “National Accountability Bureau” respectively), pursuant to an asset recovery agreement (the “Agreement”) dated 20 June 2000 which required the defendant to trace and locate the assets taken from first claimant and its institutions and transfer them back to the former. The incentive for the defendant lay in the commission of 20% of the amount available to be transferred.
In October 2003, on grounds of repudiatory breaches of contract, the second claimant gave notice to the defendant to rescind the Agreement. Subsequently, the defendant commenced arbitration proceedings against the claimants. The majority of the claim related to the value of the chance that the defendant lost to receive payment in respect of one of the recoveries that the defendant had assisted the claimants with. The tribunal issued its Quantum Award dated 20 December 2018 (“the award”), in which it awarded the defendant US $21,589,460 plus interest as damages.
The claimants originally initiated proceedings against the award under section 68(2)(d) (on the grounds of “serious irregularity” by way of a failure by the tribunal to deal with all the issues that were put to it) , claiming that in its assessment of loss the tribunal had not applied the “loss of chance” discount to the damages awarded. Concurrently, they also made an unsuccessful application to the tribunal under Section 57 of the Act (i.e. an application for the correction of the award), which led to the narrowing down of their challenge before the court to one under Section 68(2)(c) and/or (h) of the Act. Section 68(2)(c) allows for challenge of an award based on a failure by the tribunal to conduct proceedings in accordance with the procedure agreed by the parties; Section 68(2)(h) allows for a challenge based on a failure to comply with the requirements as to the form of the award (as to the latter, the claimants argued that this involved giving sufficient reasons).
The claimants relied on the decision in Compton Beauchamp Estates Ltd v Spence [2013] EWHC 1101 (Ch) which stated that insufficient reasons could, in principle, amount to a serious irregularity under section 68 of the Act.
Decision
Moulder J dismissed the application.
Moulder J found that there was no failure by the tribunal to provide adequate or sufficient reasons in this case – a tribunal does not have to deal with each point made by a party in relation to the essential issues and, to the extent that it was necessary for the tribunal in this case to explain its conclusion, this was done by way of the Section 57 Ruling which contained the tribunal’s reasons for reaching its decision. Moulder J found that even if she were wrong on that and it could be said that the tribunal’s decision called for a further explanation (the omission of which was a “serious irregularity”), there was no “substantial injustice”. This is because the tribunal’s Ruling on the Section 57 application made clear that there was no possibility that the tribunal might well have reached a different view and produced a significantly different outcome.
More broadly, Moulder J held that an insufficiency of reasons could not form the basis of a challenge under section 68(2)(c) or (h). She declined to follow the court’s approach in Compton, noting that important authorities relating to section 68 challenges were not cited to the court in that case (because only the claimant appeared before the court in those proceedings). Instead, Moulder J followed the decision of Teare J in UMS Holding Ltd v Great Station Properties SA [2017] EWHC 2398 (Comm), and confirmed that “section 68 is concerned with “due process” and not with whether the tribunal has made the “right decision”.” [40].
Furthermore, Moulder J considered section 70(4) of the Act which states that the court may order the tribunal to state the reasons for its award in sufficient detail if on an application or appeal it appears to the court that the award (a) does not contain the tribunal’s reasons, or (b) does not set out the tribunal’s reasons in sufficient detail to enable the court properly to consider the application or appeal. The claimants had argued that since it was not open to an applicant to bring an application under section 70(4) but was only a power for the court, this would mean that there was "no sanction" if an arbitrator failed to provide reasons. Moulder J disagreed, finding that “the Act sets down the limited circumstances in which the courts can intervene in an arbitration award and in order to make such intervention effective, has given the right for the courts to require the arbitrator to provide further reasons in conjunction with an application…”, including an application under section 68. Moulder J found there to be no basis to infer that the claimant should have any other remedy “bearing in mind that section 57 already provides a vehicle for a party to seek clarification where an award is ambiguous and an application under that section is not contingent on a section 68/69 application.”
Comment
This Commercial Court decision provides confirmation that an alleged insufficiency of reasons in an arbitral award cannot form the basis of a challenge under section 68 of the Arbitration Act. Section 68 is not the appropriate channel to bring such a complain, it being concerned with “due process” and not whether a tribunal has reached “the right decision”. Instead, parties are able, via the courts, to utilise section 70(4) of the Act. Addressing the claimants’ argument that that the approach of the courts should be modified because one of the parties was a state and therefore funded by citizens, the Commercial Court was clear that where parties have voluntarily chosen to arbitrate their disputes rather than litigate in the courts, they have elected to abide by the rules which pertain to that arbitration. They must therefore be taken to have accepted the limited supervisory role afforded to the courts by the law and must select any routes to challenge accordingly.