Factual and Procedural Background
The judgment concerns an application under Section 68(2)(d) of the Arbitration Act 1996 challenging an arbitral award. Initially, the parties were anonymised due to confidentiality and the nature of the arbitration, but both parties later agreed to public disclosure. The court found serious irregularities causing substantial injustice in two respects and reserved the decision on whether the award should be remitted or set aside. The parties sought permission to appeal, which was granted due to the case's importance. This judgment also addresses costs.
Legal Issues Presented
- Whether the arbitral award should be remitted to the tribunal for reconsideration or set aside in whole or in part under Section 68(3) of the Arbitration Act 1996 following a finding of serious irregularity under Section 68(2)(d).
- The criteria and circumstances under which it is appropriate to set aside an award rather than remit it, including considerations of justice, costs, time, and the conduct of the arbitrators.
- The appropriate costs order following the setting aside of the award.
Arguments of the Parties
Appellant's Arguments
- The tribunal failed to properly consider whether the Defendant was responsible for delays, an issue critical to liability and termination validity.
- The arbitrators did not assess the reasonableness and proportionality of termination based on relevant defaults by the Defendant.
- The quantum assessment overlooked the Defendant's breaches and responsibility for delays, leading to an inflated compensation award.
- The tribunal’s approach showed a lack of detachment from the dispute, undermining confidence in their ability to fairly reconsider the matter if remitted.
Respondent's Arguments
- Many legal and factual findings by the arbitrators were not challenged and should remain binding.
- Remission is preferable to setting aside, allowing the original arbitrators to address the irregularities.
- Given no allegations of partiality or misconduct, the tribunal should be trusted to conduct a fair reconsideration.
- Costs should reflect the mixed success of the parties, potentially warranting no order as to costs or an issues-based order.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Hussman v Ahmed Pharaon [2013] I All ER (Comm) 879 |
Clarification that setting aside and declaration of no effect are practically similar remedies under Section 68. |
Supported the understanding of remedies available under Section 68(3). |
| Pacol Ltd v Joint Stock Co. Rossakhar [2000] 1 Lloyd's Rep 109 |
Demonstrated circumstances where setting aside is appropriate due to serious irregularity requiring a full re-hearing. |
Illustrated a case where remission was inappropriate due to the need for a complete re-hearing. |
| Ascot Commodities NV v Olam International Ltd [2002] CLC 277 |
Set aside an award for failure to address a central point; emphasized the appropriateness of setting aside when reconsideration would be problematic. |
Used to support the decision that setting aside may be required where the tribunal failed to address key issues and a fresh start is necessary. |
| Lovell Partnerships (Northern) Ltd v AW Construction plc (1996) 81 BLR 83 |
Test for removal of arbitrators and setting aside awards where confidence in arbitrators is lost. |
Applied to assess whether the tribunal could fairly reconsider the issues or if a new tribunal was required. |
| James Moore Earthmoving v Miller Construction Ltd [2001] BLR 322 |
Confirmed the objective test for removal of arbitrators and appropriateness of setting aside awards. |
Supported the principle that loss of confidence in arbitrators may justify setting aside rather than remission. |
| Sinclair Roche & Temperley v Heard [2004] IRLR 763 |
Factors relevant to remitting matters to the same tribunal, including proportionality, passage of time, and risk of bias. |
Considered analogous factors in deciding between remission and setting aside. |
| Boardman v Nugent Care Society [2013] ICR 927 |
Endorsed the guidance on remitting matters to tribunals considering the risk of bias and fairness. |
Supported weighing similar factors in arbitration context. |
| Norbrook Laboratories Ltd v Tank [2006] EWHC 1055 (Comm) |
Serious irregularity including unilateral contacts and antagonism warranting setting aside. |
Illustrated the spectrum of seriousness of irregularities affecting remedy choice. |
| Brockton Capital LLP v Atlantic-Pacific Capital Inc [2014] 2 Lloyd's Rep 275 |
Applied test for confidence in tribunal’s ability to fairly resolve issues upon remission. |
Referenced as a contrasting case where remission was appropriate due to maintained confidence in the tribunal. |
| Van der Giessen-de-Noord Shipbuilding Division NV v Imtech Marine & Offshore BV [2009] 1 Lloyd's Rep 273 |
Partial setting aside with appointment of umpire following failure to address important issues. |
Demonstrated that partial setting aside and remediation mechanisms may be appropriate depending on circumstances. |
Court's Reasoning and Analysis
The court began by outlining the statutory framework under Section 68(3) of the Arbitration Act 1996, emphasizing that remission of the award to the tribunal is the default remedy unless it is inappropriate to do so. The burden lies on the party seeking relief other than remission to show that remission is inappropriate. The court reviewed relevant legal commentary and case law to identify factors that may render remission inappropriate, such as serious miscarriage of justice, loss of confidence in arbitrators, the necessity of a full re-hearing, or the arbitrator’s incapacity to conduct the proceedings properly.
The court analyzed the particular facts of the case, focusing on two established grounds of serious irregularity: the tribunal’s failure to consider the Defendant’s responsibility for delays (a liability issue) and the failure to assess the quantum of compensation properly in light of breaches by the Defendant. These were critical issues affecting a substantial portion of the award.
The court noted the significant lapse of time since the evidence was heard and expressed concern about the tribunal’s ability to recall and fairly reconsider the case if remitted. It acknowledged the parties’ submissions on the tribunal’s impartiality and professional conduct but found that the tribunal’s prior conclusions and approach created a risk that remission would not result in justice being done or seen to be done.
Considering the scale of the irregularities, the importance of the issues affected, the likely costs and delays associated with remission, and the risk of the tribunal subconsciously reaffirming its prior findings, the court concluded that setting aside the award in its entirety and referring the matter to a new arbitral tribunal was appropriate.
Regarding costs, the court recognized the Claimant's overall success but also the Respondent’s partial success on several grounds. It rejected an issues-based cost order as impractical and unfair to the Claimant, instead ordering the Respondent to pay 80% of the Claimant’s costs, with an interim payment of £146,000 on account.
Holding and Implications
The court’s final decision was to set aside the arbitral award in its entirety and order that the dispute be resolved by a different arbitral tribunal. The Respondent was ordered to pay 80% of the Claimant’s costs of the proceedings, to be assessed on the standard basis, including an interim payment on account of costs amounting to £146,000.
This decision directly affects the parties by nullifying the existing award and necessitating a new arbitration process before a different tribunal. No broader precedent was established beyond the application of established principles concerning remission and setting aside of arbitral awards under Section 68 of the Arbitration Act 1996.