Inadequate reasons do not give rise to a freestanding challenge to an award under s.68 Arbitration Act 1996

The Commercial Court has held that an arbitration tribunal’s failure to explain how it had valued a loss of chance claim did not of itself constitute a reason for the unsuccessful party to challenge the award under s.69 Arbitration Act 1996. In doing so, the court indicated that a previous case on inadequate reasoning, Compton Beauchamp Estates Ltd v Spence [2013] EWHC 1101 (Ch), may have been wrongly decided because the judge in that case did not have all of the relevant authorities before him.

Background

In Pakistan v Broadsheet LLC [2019] EWHC 1832 (Comm), the State of Pakistan was found by the tribunal to have unlawfully terminated its contract with Broadsheet, an asset recovery company. Broadsheet was awarded over USD21m in damages, principally for the loss of the chance to obtain commission on the recovery of certain assets. The award did not explain how the lost commission had been valued or what discount had been applied to reflect the chance that it might not have become payable. Pakistan challenged the award for serious irregularity on the grounds that the tribunal had failed to apply the procedure agreed by the parties (s.68(c) of the 1996 Act) and/or had failed to comply with the requirements as to the form of the award (s.68(h)).

Failure to follow the agreed procedure

The parties had agreed to arbitrate under the Chartered Institute of Arbitrators Rules 2000. Article 9 of these Rules provides that:

“any award… shall contain sufficient reasons to show why the arbitrator has reached the decisions contained in it”,

Failure to comply with requirements as to form

It was held in Compton Beauchamp Estates Ltd v Spence [2013] EWHC 1101 (Ch) that a failure to give reasons can give rise to a challenge under s.68(h). However, Broadsheet drew the court’s attention to an earlier line of cases beginning with Margulead v Exide Technologies [2005] 1 Lloyd's Rep 324 which had not been cited to the judge in Compton and provided that insufficient reasons alone cannot give rise to a s.68 challenge. Rather, the judge in Margulead held that a party seeking to challenge the award must have another substantive reason for the challenge. If the lack of inadequate reasons prevents the court from reaching a decision on that challenge, he found that the court could then order the tribunal to supply adequate reasons under s.70(4) of the 1996 Act. He considered this to be not a freestanding remedy, but a procedural tool of which the court can avail itself.

Reasons vs issues

Margulead also stressed the need to distinguish between a failure to give reasons and a failure to address all the issues put to the tribunal, which could give rise to a challenge under s.68(d). An “issue” for this purpose was held to be a specific claim or defence raised by the parties. World Trade Corporation v Czarnikow Sugar [2005] 1 Lloyd's Rep 422 confirmed this approach and explained that arbitrators need not set out each stage of their evaluation of the evidence nor explain why they have given more weight to some pieces of evidence than to others.

The decision

Moulder J held that although the challenge in Margulead was brought under s.68(d), the principles it set out were of wider application. It was irreconcilable with Compton, but the latter strictly speaking should not be cited as binding authority because only the claimant had appeared at the hearing. Margulead had not been cited to the judge in Compton because he had specifically requested that he be provided with authorities dealing with reasons in decisions concerning valuations or expert evidence, which was not the case in Compton. As a result, it was doubtful whether Compton correctly represented the approach a court should take to s.68 challenges.

Accordingly, Moulder J found that inadequate reasons could not amount to a serious irregularity under any part of s.68. He commented that:

• The tribunal does not have to deal with each point made by a party or refer to all the relevant evidence.

• The assessment and evaluation of evidence is a matter for the tribunal with which the court should not interfere.

• The court was not concerned with whether or not the tribunal had made the correct decision, but with whether it had followed due process.

• s.68 should not be broadly interpreted; to do so would be inconsistent with the 1996 Act’s objective of limiting court intervention in the arbitral process.

Comment

This is a significant decision which clarifies what is required of arbitrators when drafting an award and provides a principled basis for distinguishing between two conflicting lines of authorities.

The practical conclusion for parties who are dissatisfied with a tribunal’s reasoning is that they should consider whether or not the award provides them with enough information to determine whether or not a challenge on one of the substantive grounds set out in s.68 would have reasonable prospects of success. If so, the appropriate course is to bring the challenge and, if necessary, invite the court to make an order under s.70(4) requiring the tribunal to provide further reasons to enable the court to decide the challenge. If the award does not provide sufficient information to assess the merits of bringing a challenge, parties should take the preliminary step of applying to the tribunal for clarification under s.57 of the 1996 Act.

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