English Court Rejects s.68 Challenge Brought For Breach Of Tribunal’s Duty Of Fairness

In Obrascon Huarte Lain SA (t/a OHL Internacional) & Anor v Qatar Foundation for Education, Science & Community Development [2019] EWHC 2539 (Comm), in a dispute concerning the termination of a construction contract relating to the construction of Sidra hospital, the English High Court considered an argument that the tribunal had breached its duty, rejected the challenge under s.68 of the Arbitration Act 1996, and set out some guiding principles in relation to s.68 challenges.

The dispute involved the engagement of a joint venture by the Qatar Foundation for the construction of a hospital complex in Doha, the contract for which provided for Qatari law and the resolution of disputes by ICC arbitration. The Foundation served a notice of termination of the contract and made a call on a performance bond. The Foundation subsequently commenced arbitral proceedings against the JV claiming substantial damages on the basis that it had validly terminated the contract, an allegation which the JV disputed.

In one of the various partial awards, the tribunal held that the Foundation had lawfully exercised the termination provisions for default under the Contract. The JV sought remission of the issue of whether the Foundation had validly terminated the contract in circumstances where termination was effected by service of a notice and not court (or arbitral) order on the basis of serious irregularity, and relying on section 68(2)(a) of the Arbitration Act 1996 (failure by the tribunal to comply with section 33), the joint venture alleged that the Tribunal decided the termination issue in the Foundation’s favour on the basis of a legal analysis which was not explored fairly or properly with the parties.

Illustrating the high threshold that a challenging party must overcome when seeking to establish that a tribunal has committed a fundamental error of procedural unfairness in breach of its general duty to act fairly and reasonably between the parties, the s.66 challenge was rejected.

In relation to s.68, the Court stated [44]:

“S. 68 imposes a high threshold for a successful challenge, reflecting the purpose of the Act which is to reduce the extent of court intervention in the arbitral process. It is not to be used simply because one of the parties is dissatisfied with the result, but rather as a longstop 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” (see Lawrence Collins LJ in Bandwidth Shipping Corporation v. Intaari [2007] EWCA Civ 998 (The Magdalena Oldendorrf) at [46]). As a matter of general approach, the courts strive to uphold arbitration awards. They do not approach them with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults. The approach is to read an award in a reasonable and commercial way, expecting, as is usually the case, that there will be no substantial fault (see Zermalt Holdings SA v Nu Life Upholstery Repairs Ltd [1985] 2 EGLR 14 at p. 14F; Latvian Shipping Company v The People’s Insurance Company OEJSC [2012] EWHC 1412 (Comm) at [30] to [34]).”

The Court noted that determining whether or not the duty of fairness has been breached will always be a question of fact and sometimes degree and set out the following broad legal principles [45]:

  1. There will generally be a breach of s. 33 of the Act where a tribunal decides the case on the basis of a point which one party has not had a fair opportunity to deal with. It is not right that a decision should be based on specific matters which the parties have never had the chance to deal with, nor is it right that a party should first learn of adverse points in the decision against him;
  2. If a tribunal considers that the parties have missed the point and/or contemplates a completely different basis for a decision, the parties need to be given notice and a proper opportunity to consider the position and respond. This does not mean that every nuance or inference which the tribunal wishes to draw needs tobe put to the parties if it differs from that which has been precisely contended for in the arbitration;
  3. A tribunal does not have to set out each step by which they reach their conclusion or deal with each point made by a party to an arbitration and a tribunal can deal with a number of issues in a composite disposal rather than address each issue seriatim;
  4. (Save possibly in exceptional cases) s. 68(2)(a) in referring to the general duty of fairness in s. 33 does not allow a party to contend that the tribunal has disregarded or overlooked a particular piece of evidence since that amounts to an assertion that the arbitrators made mistakes in their findings of primary fact or drew unsustainable inferences from the primary facts;
  5. In determining whether there has been substantial injustice, the applicant does not need to show that the result would necessarily or even probably have been different. He simply has to show that the tribunal might well have reached a different view and produced a significantly different outcome. It is enough for the applicant to show that the arbitrator reached a conclusion unfavourable to him which, but for the irregularity, he might well never have reached, provided always that the opposite conclusion is reasonably arguable.

The broad legal principles were derived from the following cases: Terna Bahrain Holding Co v Al Shamsi [2013] 1 Lloyd’s Rep 86 at [85]; Zermalt Holdings SA v Nu Life Upholstery Repairs Ltd (supra) at p. 15M; RJ v HB [2018] EWHC 2833 (Comm) at [27]; Vee Networks v Econet [2005] 1 Lloyd’s Rep 192 at [90]; Northern Shipping v Remol [2007] EWHC 1821 at [25]-[26]; K v A [2019] EWHC 1118 (Comm) at [37]; ZCCM Investments Holdings Plc v Kansanshi Holdings plc [2019] EWHC 185 (Comm) at [49] to [63]; Petrochemical Industries Company (K.S.C.) v The Dow Chemical Company [2012] EWHC 2739 (Comm) at [27]); Sonatrach v Staoil [2014] EWHC 875 at [13] to [18].

The Court concluded [102]:

“…the JV’s challenge on the basis of serious irregularity falls to be dismissed. I recognise the potentially significant financial consequences for the JV of its defeat … However, I am unable to accept that this eminent and highly experienced Tribunal made a fundamental error of unfairness in breach of s. 33 of the Act as suggested. This is not a question of undue deference; I would have had no hesitation in remitting the matter had I been persuaded that there had been a breach of the Tribunal’s duty under s. 33 of the Act causing substantial injustice. But I have not been so persuaded on a fair and proper reading of the Award. In summary, the JV has failed to overcome the high threshold for a successful s. 68(2)(a) challenge.”

See the review of this case by McNair Chambers.

About Phillip Rompotis

Phillip practices as a barrister and arbitrator in Hong Kong. He has over 25 years’ litigation and arbitration experience in commercial disputes relating to construction & engineering, financial services, joint venture & shareholders agreements, technology, trusts, property and landlord & tenant. He is a Fellow of the Chartered Institute of Arbitrators, the Singapore Institute of Arbitrators, the Malaysian Institute of Arbitrators, and a member of various lists/panels of arbitrators.

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