Award Set Aside Due To Tribunal’s Failure To Act Fairly and Impartially

Phillip Rompotis reviews the mid-May 2019 decision in P v D and others [2019] EWHC 1277, where the English High Court upheld the Plaintiff’s challenge under s.68 of the English Act, finding that the arbitrators had breached their duty to act fairly and impartially under s.33 of the Act on the basis that (i) the arbitrators reached their decision based on an analysis that had not been put to the parties and (ii) the tribunal failed to ensure that a key witness had the opportunity to address matters affecting the credibility of his evidence relating to key matters.

In the arbitration, the Defendant’s claim included a claim for repayment of loans made by them to the Plaintiff. The tribunal found that there was an estoppel by which the Defendant’s were precluded from demanding the payment of any loans due to it before January 2018, and that there was neither an agreement nor an estoppel extending such repayment date to January 2020 as the Plaintiff contended.

The Plaintiff argued two grounds in support of it application:

  • that the tribunal acted in breach of their duty under s.33 of the Act to 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. This arose because in relation to a meeting between the Plaintiff’s representative and the Defendants’ principal (where the Plaintiff alleged the agreement/estoppel arose), there was no cross-examination of the Plaintiff’s representative and yet the tribunal found that there was no such agreement/estoppel.
  • by reference to an ambiguous passage in the award, the tribunal concluded that there was a shared assumption at the meeting but that it was conditional or contingent and hence of no effect. This conclusion was not open to the tribunal because there was no cross-examination on this issue, nor was it addressed by the Defendant or dealt with at the arbitration hearing.

The Plaintiff argued that where there was a challenge to a witness on core issues as to credibility, it ought to be put in cross-examination to that witness – if it wasn’t, it could not be relied upon, an argument relevant to both grounds. Further, the Plaintiff argued that the tribunal could not base their decision against a party upon a case not argued against it (relevant to the second ground).

The Court observed that the tribunal’s findings – that there was no agreement or promise at the meeting and/or that there was a shared assumption (qualifying as an estoppel) but conditional upon it being incorporated into a wider package – were not the subject of cross-examination of the Plaintiff’s representative, nor were they put to him, nor in fact did they feature in closing submissions. The Court also noted that during the arbitration, the tribunal alerted the Defendant’s counsel that he had not covered the central issue in the case – the conversation at the meeting where the loan extension was allegedly discussed. Yet, despite this, no case was put to the Plaintiff’s representative challenging or questioning the alleged conversation at the meeting.

The first ground was founded on the well-known passage by Lord Herschell LC in Brown v Dunn [1894] 6 R 57, as emphasised in the following passage of Jacob LJ in Markem Corp v Zipher Ltd [2005] RPC 31: “Procedural fairness not only to the parties but to the witnesses requires that if their evidence were to be disbelieved they must be given a fair opportunity to deal with the allegation.” The second ground was founded on two Court of Appeal authorities;

  • The Vimeira [1984] 2 Lloyd’s Law Rep 66, where an appeal was allowed on the basis that the case accepted by the tribunal was unpleaded, never argued, not supported by evidence and either abjured by or not put to the experts, as confirmed in a s.68 context in The Pamphilos [2002] 2 Lloyd’s Law Rep 681
  • Zermatt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14, where the CA stated that “It is not right that [an arbitrator’s] 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. That is contrary both to the substance of justice and to its appearance.” This was confirmed by Colman J in Vee Networks Limited v Econet Wireless International Ltd [2005] 1 Lloyd’s Law Rep 192)

The Court (as well as the parties), accepted that s.68 imposes a high hurdle. The Court noted the following:

  • s.68 is 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 (by reference to the Departmental Advisory Committee on Arbitration Law); see also Lesotho Highlands Development Authority v Impregilo SpA [2006] 1 AC 221; Sonatrach v Statoil National Gas LLC [2014] 2 All ER (Comm) 857 (per Flaux J); UMS Holdings v Great Station Properties SA [2017] 2 Lloyd’s Law Rep 421 (per Teare J).
  • Success under s.68 requires both the establishment of serious irregularity (in this case, by reference to s.68(2)(a)), but also that the Court considers that such serious irregularity has caused or will cause substantial injustice to the applicant.

The court noted that it could not say whether the result in the arbitration would have been any different had the Plaintiff’s representative had been properly cross-examined and given an opportunity to deal with what were seen as weaknesses by the tribunal or to deal with the alternative case which was not run. That said, in allowing the application under s.68 on both of the grounds advanced by the Plaintiff, the Court noted the folllowing statement by Ackner LJ in The Vimeira: “Where there is a breach of natural justice, as a general proposition it is not for the court to speculate what would have been the result if the principles of fairness had been applied”, and the following statement by Colman J in Vee Networks:

“The element of serious injustice in the context of s68 does not… depend on the arbitrator having come to the wrong conclusion as a matter of law or fact but whether he was caused by adopting inappropriate means to reach one conclusion whereas had he adopted appropriate means he might well have reached another conclusion favourable to the applicant. Thus, where there has been an irregularity of procedure, it is enough if it is shown that it caused the arbitrator to reach a conclusion unfavourable to the applicant which, but for the irregularity, he might well never have reached, provided always that the opposite conclusion is at least reasonably arguable. Above all it is not normally appropriate for the court to try the material issue in order to ascertain whether substantial injustice has been caused. To do so would be an entirely inappropriate inroad into the autonomy of the arbitral process.”

See also the following reviews of the case:

Morrison Foerster conclude as follows:

“The judgment shows that in deciding to set aside the award for serious irregularity, the Court assessed the tribunal’s conduct of the arbitration against solely domestic procedural and evidentiary standards and made no reference to practices commonly observed in international commercial arbitration, including, importantly, the IBA Rules. P v D thus serves as an important and somewhat disconcerting reminder of the risk that supervisory and enforcement courts may assess arbitral proceedings against domestic procedural standards. This precedent may have problematic implications for future awards, given that London is often chosen as a seat of arbitration merely for neutrality or convenience by parties from foreign countries and diverse legal traditions, including those that do not put the same emphasis on oral testimony as the English tradition.”

While the judgment in this case is in places somewhat difficult to follow, the case is an interesting one for practitioners, particularly those who appear as advocates in arbitration proceedings (and perhaps more so for advocates without formal legal training). The case illustrates that problems can arise – as they did here – where there was a failure to cross-examine a witness on a key issue and where the tribunal appears to have based its decision (at in least part) upon a case not properly argued. In these circumstances, it is perhaps understandable that the party invoked fairness as the basis of setting aside an award. In an environment where legal training is not a prerequisite to act as arbitrator, the case serves as a warning that, while arbitration proceedings can be less formal than court proceedings, certain traditions of common law courts – such as the rule in Brown v Dunn – can surface and may have important consequences.

Interestingly, in Mango Boulevard Pty Ltd v Mio Art Pty Ltd [2018] QCA 39, a decision of the Queensland Court of Appeal, the appellant sought to overturn a trial judge’s decision to dismiss an application to set aside an arbitrator’s award on the basis that the arbitrator breached the rules of natural justice by adopting a share-valuation methodology not advanced by either party and which was not put to the appellant’s expert witnesses (but was subsequently dealt with in submissions, without recalling the expert). The CA found that it was not possible to conclude that there had been real unfairness or real practical prejudice as the party understood the point and chose to respond to it in a particular way (by submissions rather than recalling the witness) which was ultimately a forensic choice made by the party. The CA therefore dismissed the appeal and upheld the arbitral award.

See the review of Mango by Adam Rollnik in CommBar Matters.

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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