13 April 2018 Sadie Buls ArbitrationLinks

Successful challenge on basis of serious irregularity – A tribunal’s failure to deal with contribution claim

In P v D & Ors [2017] EWHC 3273 (Comm), London’s Commercial Court upheld a challenge to a London Court of International Arbitration (LCIA) award brought under s.68 Arbitration Act 1996 (the AA 1996) for serious irregularity. The claimant sought remission of the award on the basis that the Tribunal failed to deal with all the issues that were put to it (in particular, it failed to consider the claimant’s contribution claim in the proceedings), thereby causing the claimant substantial injustice. In its judgment, the Court identified a number of errors in the Tribunal’s award and provided guidance on when a LCIA Tribunal can exercise post-award powers to make corrections or issue additional awards under the LCIA Rules.

Background

The underlying LCIA arbitration arose out of contractual arrangements relating to the acquisition by the first defendant of shares in the third defendant, a proportion of which came from the claimant and from the second defendant. The claimant alleged that it had not been paid in full for the shares. The first defendant counterclaimed that there had been a failure by the claimant to transfer certain trademarks, so as to put the claimant and the second defendant as sellers, jointly and severally, in breach of warranty under the share sale and purchase agreements.

The LCIA Arbitration

The arbitration was divided into two phases. By the Phase 1 Award, the Tribunal dismissed the claimant’s primary claim and held that breach of warranty had been established on the first defendant’s counterclaim. Phase 2 of the arbitration was to cover the monetary or other relief to be granted on the finding on the defendant’s counterclaim.

The second defendant had played an active part in Phase 1 of the proceedings but did not do so in Phase 2. Nevertheless, it was fully on the record throughout Phase 2, was copied into all relevant correspondence, provided with all pleadings and submissions and had designated representatives. During the Phase 2 proceedings, the claimant’s legal representation changed. It was also agreed, for various reasons, that Phase 2 would be determined on documents only.

Initially in the Phase 2 proceedings, the first defendant’s counterclaim was raised jointly and severally against the claimant and the second defendant. Although the second defendant played no active part, there was no indication that it had acknowledged or conceded joint and several liability in respect of the counterclaim. The claimant’s statement of case made clear that if the first defendant’s counterclaim was maintained, so too was the claimant’s contribution claim against the second defendant.

In the lengthy Phase 2 Award, the Tribunal set out (in what was named Part J of the award) the relief sought by the parties, and (in Part K2) a summary of the parties’ respective positions regarding the first defendant’s counterclaim. In Part J, the arbitrators identified that the claimant claimed contribution against the second defendant. Part K2 contained nothing to indicate that the Tribunal understood the claimant’s counterclaim to be withdrawn, abandoned or not pursued. Ultimately, in the dispositive section of the award (Part L), the Tribunal stated that it found in favour of the first defendant and ordered that the claimant pay it $11 million. Part L made no reference to the claimant’s contribution claim but stated, “All other claims and counterclaims are dismissed.”

The claimant applied to the Tribunal to exercise its powers under Article 27.1 (power to correct an award) or 27.3 (power to issue an additional award) of the LCIA Rules, but the Tribunal ruled that it did not have the power under Article 27 to remedy the problem with the Phase 2 award.

The claimant challenged the award under s.68(2)(d) AA 1996, arguing that the Tribunal’s failure to consider the contribution claim caused the claimant substantial injustice.

Commercial Court Decision
Mr Justice Baker agreed with the claimant that the matter before him was not an erroneous decision but an “erroneous failure” by the Tribunal to appreciate that there was a claim live before it which was not given any conscious consideration in the award at all. It was therefore appropriate that the challenge be brought under s.68 AA 1996.

Baker J noted that the Tribunal considered the claimant’s contribution claim to have been superseded by the written submissions of its new legal representative. However, Baker J found there was nothing in those submissions which could even arguably have been thought to amount to an abandonment or withdrawal of the contribution claim - the claimant’s submissions were simply focussed on its continued argument that no loss had been suffered by the first defendant. Baker J held that any omission of a mention of the pleaded contribution claim could, at best, be described as only ambiguous, particularly given that the matter was dealt with on documents alone, with no opportunity for the Tribunal to clarify issues at a final hearing. In light of that, Baker J found that it was “incumbent” on the Tribunal to clarify whether the claimant’s contribution claim was being abandoned or withdrawn. Baker J doubted that this is what the Tribunal had believed; rather, he noted that Phase 2 recorded the claim as being raised and requiring determination, something which then - in error - was not carried through to discussion, analysis or consideration in the award.

The Court also considered whether the Tribunal had been correct to rule that it did not have the power to remedy the problem with the Phase 2 award under Article 27 of the LCIA Rules. Baker J found that the Tribunal was correct in relation to its decision on its power under Article 27.1 as this was not a case of the award failing as a result of error in its drafting or articulation. However, he found that the Tribunal had erred in concluding that a matter of failing to deal with an issue put before it would not constitute an error capable of correction under Art.27.3. Whether or not a Tribunal can correct an award under that rule would depend on whether a claim or counterclaim put before the Tribunal has failed to be determined. In these arbitration proceedings, there was no lacuna, by way of claim or counterclaim which was presented in the arbitration and in respect of which there was no dispositive award. This was because Phase 2’s dispositive provisions did determine the claimant’s contribution claim by way of the sentence, “All other claims and counterclaims are dismissed.” Accordingly, although Baker J disagreed with the Tribunal’s reasoning in relation to Article 27.3, he agreed with the decision that it did not, in this instance, have the power to act under that provision of the LCIA Rules.
 
Baker J ordered that the appropriate relief was to remit the award to the Tribunal with a direction that the arbitrators give due consideration to the claimant’s contribution claim.
 
Comment
This judgment highlights the perils of document only decisions which can limit a Tribunal’s opportunity to clarify matters with the parties. The judgment also provides a helpful analysis of the powers available to a Tribunal to correct an award under Article 27.  If the Phase 2 award in this arbitration had not disposed of “all other claims and counterclaims”, it appears it would have remained open to the Tribunal to make an additional award under Article 27.3. Instead, the Tribunal’s errors led the Court to conclude that it was satisfied that substantial injustice had been caused to the claimant.