English High Court sets aside award as tribunal failed to act fairly and impartially

In P v D and Ors [2019] EWHC 1277 (Comm), the English High Court granted an application made under Section 68 of the Arbitration Act 1996 (the “Act”), on the basis that the arbitrators were in breach of their duty under Section 33 of the Act to act fairly and impartially.

Background

The dispute arose out of a disagreement between the parties with respect to the repayment date of loans made by the first defendant company (“D”) (inter alia) to the claimant company (“P”). P claimed that D had verbally granted an extension for repayment to 2020, at a meeting in August 2015.

D, however, denied this. So, the arbitral tribunal was faced with a contest of credibility between the relevant witnesses as to what happened at that meeting. Despite the fact that the events of August 2015 constituted a “core issue” as to the alleged extension, D’s counsel did not cross-examine P’s witness on that meeting.

The arbitral tribunal found in its partial final award that there was no agreement to extend the repayment date to 2020. P invoked Section 57 of the Act and asked for clarification and/or correction of the award, in particular clarification of its finding in that regard. In a supplementary award, the tribunal clarified that this conclusion was based on its interpretation of the witness evidence given on behalf of P in respect of the August 2015 meeting. Although the principal thrust of P’s witness was that an extension had been granted, the tribunal had picked up on a reference by him to an ongoing restructuring between P and D. From this the tribunal had concluded that there would have been no stand-alone extension, and that it would only have been agreed as part of said wider package (which had not been shown).

That conclusion, however, was not D’s case (D simply denied any recollection of the meeting), nor was P’s witness cross-examined as to his recollection of the August 2015 meeting, nor was such an interpretation put to P’s witness by the arbitrators or otherwise.

Section 68 of the Act permits a party in an English seated arbitration to apply to the court for an award to be set aside on the basis of serious irregularity. P did so, claiming that the arbitrators had acted in breach of their duty under Section 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” as they had failed to cross-examine P’s witness and had based their decision in D’s favour on a case that had not been relied on by D nor otherwise addressed during the arbitration.

Decision

Burton J granted the application. He identified that success under Section 68 of the Act does not just require the establishment of a serious irregularity affecting the tribunal, proceedings or award (including, a failure by the tribunal to comply with its Section 33 duties), but also that such irregularity has caused, or will cause, substantial injustice to the applicant. Burton J held that the arbitrators had violated their duty under Section 33, causing substantial injustice to P, basing his reasoning on two primary grounds.

Firstly, identifying P’s witness’ account of the August 2015 meeting as the “core issue”, Burton J held that, since there was no cross-examination of him in relation to that meeting, the arbitrators had not treated his evidence in a fair manner in interpreting it in the way that they did. Fairness to a witness requires that, if his evidence is to be disbelieved, he must first be given a fair opportunity to deal with the allegation, Edwards Lifesciences LLC v Boston Scientific Scimed Inc [2018] FSR 29 CA and Markem Corp v Zipher Ltd [2005] EWCA Civ 267 considered. In this case, not only was the witness’ version of the events of August 2015 rejected without him having had an opportunity to defend his credibility under cross-examination, but he was given no opportunity to explain his case in relation to the alleged conditionality or contingency of the shared assumption that there would be an extension, which was accepted to be the “proper analysis of his evidence”.

Secondly, the arbitrators had breached principles of natural justice by basing their decision on the conditionality or contingency of the shared assumption that there would be an extension. Such a case had neither been argued nor dealt with during the hearing before the tribunal. If this point had been raised before, P might have been able to persuade the arbitrators that a “promise can be made or a shared assumption held, even though the formal details of a contractual variation still need formally to be established”. Instead, P had been unfairly denied such an opportunity.

Burton J summarised his position by saying that “I cannot possibly say that if [P’s witness] had been properly cross-examined and given the opportunity to deal with what were in the event seen as weaknesses by the Arbitrators in his case and/or to deal with the alternative case which [D’s counsel] Mr. Berry did not run, there might not have been a different outcome.”

Comment

Whilst the decision is noteworthy as a relatively uncommon example of the Court allowing a challenge to an arbitral award, the Court’s decision serves as a reminder to arbitrators of the importance of upholding principles of fairness and natural justice by ensuring that: (i) witnesses are given a proper opportunity to address (and rebut) possible weaknesses in their evidence, if such evidence is to be disbelieved by the tribunal, and (ii) the tribunal does not make a finding based on an argument that has not been argued before the hearing of the tribunal..

Click here for the full text of the judgment.

Benja Arnott would like to thank Upasana Chauhan for her assistance in the preparation of this article.