UK: Challenging Arbitral Awards: Finality is Good But Justice is Better

Last Updated: 21 January 2003
Article by Sarosh Zaiwalla

Sarosh Zaiwalla is an English solicitor and a member of the International Court of Arbitration. Neither he nor his firm have appeared on behalf of the parties before the arbitration tribunal in the three cases discussed in this article. His firm. Zaiwalla & Co. has however, represented one of the parties in all the three court challenges.

Much has been said for the concept of finality of an arbitral tribunal’s award. An arbitral tribunal’s award must be final and binding on the parties; that is what commercial parties want and this is a general accepted proposition. There are however, exceptions to this principal, although these are rare and far between. For example, if after an award had been rendered, it were discovered that one of the arbitrators was guilty of corruption in regard to the particular arbitral process, a court would not enforce the award.

But what happens in cases where it would be unjust for the courts to allow an arbitral award to stand, even if one of the parties are themselves to blame for the unfair outcome? Such cases often arise where one of the parties is from a developing country and is at a disadvantage because of differences in legal processes, or because they did not have the same resources and experience as the other party. These cases put into play the conflict between doing justice, and ensuring the finality of an arbitral award. As one arbitral commentator has noted: "… There is a never ending war between two irreconcilable principles, the high principle, which demands justice though the heaven fall, and low principle, which demands that there should be end to litigation."1 As Lord Atkin said many years ago in a different context: "Finality is a good thing but justice is better."2

This article provides a synopsis of the English Court’s approach in three cases where the court has vacated the arbitral award.


The claimant in this case, Hind Metals Inc., a United States Company, had obtained an arbitration award for several million U.S. dollars against Steel Authority of India Ltd., a wholly owned Indian government corporation based in New Delhi. The claim had arisen from the failure on the part of the respondent to perform a contract for the sale of steel cargo.

The award was rendered by a distinguished tribunal, chaired by Mr. Lauterpacht QC. It was a truly international arbitration: the three members of the arbitration tribunal were from Great Britain, India and the U.S.; the seat of the arbitration was London; U.S. counsel represented the claimants; and an eminent senior counsel from New Delhi represented the respondents.

The arbitral tribunal made a substantial monetary award against the respondent, who challenged the award in the High Court. The transcripts of the arbitral hearing were available to the court, and these transcripts indicated that the relationship between the respondent’s counsel and the tribunal was not as good as it should have been. Justice Hobhouse (as he then was) refused leave to enforce the award, and remitted the award back to the arbitrators to reconsider their decision. He made the following observations, no doubt referring to the strained relationship between the tribunal and counsel for the respondent. " . . . However the function of any Tribunal including the Arbitration Tribunal, is to separate the wheat from the chaff and to endeavour to arrive at a fair and just conclusion notwithstanding the lack of assistance they may be getting from one of the parties".4 In remitting the award back to the arbitrators, Justice Hobhouse also noted:

The Award, among other things purports to be a reasoned Award. Some of the important issues are simply ignored, others are so misunderstood that it cannot be said that they have been dealt with . . . They are based simply upon the minimal standards that should be applied to any formal legal Arbitration. This Award is so unsatisfactory that I would in any event have considered whether or not it ought to be remitted for this reason alone.5


This case involved the unusual issue of the effect of counsel’s misjudgement on the finality of an arbitral award, where this misjudgement has played a significant role in an award being rendered against that party.

The claimant in this case was the London-based Bermuda Oil Company and the respondent was an Indian state-owned oil corporation. The amount involved in the dispute was again several million U.S. dollars.

The distinguished tribunal consisted of no less than Mr. Adrian Hamilton QC., Mr. Gordon Pollock QC. and Mr. Martin Moor-Brick QC. In the course of the hearing, the tribunal had inquired of the respondent’s counsel whether the Indian party wished to amend its defence to plead in the alternative a defence of an agreement partly oral and partly by conduct, or by seeking to rely upon an implied term or raising issues such as waiver or estopped.

Counsel for the respondent, most probably on account of misplaced confidence in his clients’ case, disregarded the arbitral tribunal’s invitation to amend his client’s pleading in order to broaden the ambit of their defence. This decision was taken in consultation with his client’s solicitors both in London and in India. The arbitrators rendered an award of several million U.S. dollars against the respondent, based on the party’s pleaded case.

Mr. Gordon Pollock QC referred to this issue, and his braveness in doing so is commendable. He noted that:

…I wish to record my regret that the Sellers had not at some stage broadened the scope of their case along the lines touched on in paragraph 9 above.

The documents gave rise to a strong indication that the Buyers had intended to create a clear impression in the minds of the Sellers that if a satisfactory settlement of the demurrage claims were made, nothing further would be heard of the "enormous losses" said to have been suffered by the Buyers as a result of delays in delivery (which losses included that dealt with in this Award). The contemporary documents strongly suggested that the Buyers had succeeded in their aim. These documentary conclusions were confirmed by the oral evidence. I was unimpressed by the Buyers’ witnesses.

In the result I believe that the Sellers had a far stronger case than they allowed themselves to advance, one which might very well have succeeded had it been formulated differently. However, the Sellers’ learned Counsel resolutely and expressly eschewed any departure from the Sellers’ pleaded case and expressed a willingness to have this part of the case decided on the basis of express oral contractual agreement or nothing.7

In other words, had the respondents amended their plea, as the arbitral tribunal had suggested, they may have had a valid defence, which would have succeeded on the basis of the evidence presented before the tribunal.

The Indian Oil Corporation Ltd. applied to the High Court to vacate the award. One of their grounds for this request was that although there had been a failure on their counsel’s part, it would be wrong for the court to allow an arbitration award to stand, which had not been made on the basis of full legal analysis of the evidence before the tribunal.

The court agreed with this argument and remitted the award back to the arbitral tribunal. The court found that all those involved as part of the respondent’s legal team at the arbitral hearing had had different considerations in mind in rejecting the arbitrators’ invitation to amend the pleadings. The Honourable Mr. Justice Evans stated in his judgement that:

. . .I feel impelled by the evidence placed before me to conclude that there was a lamentable failure by I.O.C’s representatives at the Arbitration, collectively to appreciate what the issues were and what the scope of the existing pleading was, as was likely to be held to be. They should if necessary, have asked for a formal short adjournment of the final hearing in order to discuss the matter fully between themselves before giving a definite answer to the Tribunal.8

His Honour rejected the explanation of the respondent’s solicitor from India, given in his affidavit, that "his experience of Arbitration’s held in India led him to believe that the Arbitrators would not stand on the formality of pleadings."9

The judgement held that the arbitrator had committed technical misconduct because where the "material facts have been pleaded or admitted in evidence" a court should "give judgement in accordance with the legal consequence of the Award whether expressly pleaded or not."10 The court reconciled the two principals of finality and justice by stating that:

…These two factors, in my view are not inconsistent with each other. If either of them is to prevail, then it should be the requirement of justice. But justice, even fairness, is not an abstract concept. It has to be applied in this context between two parties who were in dispute should be resolved by an arbitral tribunal. They agreed that the tribunal’s award should be final. But they agreed this on the basis that the arbitration procedure would be regulated by law. The Court has statutory power to set aside an award when the arbitrators misconduct themselves or the reference – s. 23 of the 1950 Act – but it also has the unqualified discretion to remit the award to the chosen tribunal under s. 22. If the power is exercised, but only in circumstances when it would be unjust not to do so, then there is not, in my judgement, an uncovenanted nor an unacceptable restriction on the agreed finality of the tribunal’s award.11


The claimant in this case, Hussman (Europe) Ltd. (‘Hussman’), a Scottish subsidiary of a U.S. company, commenced an arbitration against their contracting party, Al-Ameen Development and Trading Establishment, of Saudi Arabia (‘the Al-Ameen Establishment’). Hussman had entered into a distributorship agreement on 5th June 1990 appointing Al-Ameen establishment as distributors for their products in Saudi Arabia. Hussman’s claim was for balance remaining outstanding for the products it had supplied.

The seat of the arbitration was London, and the arbitration was held according to the Rules of Conciliation, Arbitration and Expertise of the Euro-Arab Chambers of Commerce. The parties’ nominated arbitrators were from Scotland and Saudi Arabia and the chairman of the tribunal was Judge Cotran, an English judge.

The Al-Ameen Establishment was the trading name of Mr. Ahmed Pharon, a Saudi National. Under Saudi Arabian law, an establishment is in effect a registered trading name and has no distinct or separate personality of its own. By an agreement made on 25th December 1992 Mr Pharon incorporated the business carried on by him, through the Al-Ameen establishment into a limited company known as Al-Ameen Development and Trading Company, (the ‘Al-Ameen Company’). After the incorporation, the business of the establishment was transferred to it and on 14th February 1994, the Ministry of Commerce of Saudi Arabia gave approval to the transfer. Mr. Pharon’s family held all of the shares in this Company. Under Saudi law an assignment does not become binding on the other party to the contract unless that other party consents.

In its application for arbitration, the claimant named the respondent as ‘Al-Ameen’, which it defined as follows:

. . . Al Ameen means Al Ameen Development and Trade Establishment (also known as Al Ameen Development and Trade Co) a limited liability Company incorporated under the laws of the Kingdom of Saudi Arabia (Commercial Registration no. 7415) and having a place of business at PO Box 166, Rhyadh 11411, Saudi Arabia.13

Although the definition referred to it being a limited liability company, the number given was the registration number of the establishment. Hussman delivered a statement of claim against Al-Ameen establishment, repeating its aforesaid definition of Al-Ameen. A reply and counter-claim was delivered by Al-Ameen as respondent adopting the definitions in the statement of claim, which included the definition of Al-Ameen itself. The counter-claim was much larger than Hussman’s claim. The arbitration continued with Al-Ameen company being treated as the respondent. During the arbitration, Mr. Pharon delivered a statement to the tribunal in which he referred to Al-Ameen as a "limited liability Company"14. This statement asserted that the counter-claim was being pursued by ‘Al-Ameen company’.

Prior to the commencement of the arbitration, Hussman had obtained legal advice from its Saudi lawyers to the effect that the Al-Ameen establishment was an individual Establishment, which had been deleted from the commercial register in 1994 and had ceased to exist as a legal entity. The Al-Ameen company had replaced Al-Ameen Establishment. In the course of the arbitration Hussman realised that it had not been served with the notice of assignment of Al-Ameen establishments interest into Al-Ameen company and had not consented to the assignment. Therefore their contract had not been taken over by Al-Ameen company. Hussman then sought to amend the pleadings, so that Al-Ameen would be described as Al-Ameen Establishment.15 The amendment strongly asserted that the only party that could bring a counterclaim was Al-Ameen establishment, that is, Mr. Pharon. Al-Ameen Company opposed this amendment. It was the respondent’s argument at the hearing that the Al-Ameen company was entitled to an award from the arbitration tribunal. The arbitration tribunal rejected Hussman’s application to amend.

The tribunal made a substantial monetary award in favour of Al-Ameen company against Hussman. Hussman challenged the award in the English court. Justice Thomas held that the tribunal had no jurisdiction to make an award in favour of Al-Ameen company16 because the assignment agreement between the Al-Ameen establishment and Al-Ameen company although being an effective agreement to assign the rights and obligation under the contract was not binding on Hussman. This is because Hussman had not consented to the assignment. The award was accordingly vacated.

Mr. Pharon then made an application to the original tribunal to publish a new award in his favour. Hussman opposed this, submitting that the tribunal had exhausted its jurisdiction in making the first award despite the defect and it was not open to the tribunal to pick up the reference again and make a second award, this time in favour of Mr. Pharon. Hussman said that the court had not ordered the tribunal to do so. It also said that it was Mr Pharon who had opposed its amendment to substitute him ie Al-Ameen establishment as respondent, in place of the Al-Ameen Company.

Mr. Michael Bindle QC, sitting as a deputy judge of the High Court held that the tribunal had not exhausted its authority by becoming functus and upheld the arbitral tribunal’s second award in favour of the respondent. After reviewing the legal arguments, Mr. Michael Bindle Q.C. summed up his decision as follows:

The present case is specifically concerned with S 67(1)(b). The Tribunal’s purported decision on the merits has been declared to be of no effect by reason of the Tribunal’ lack of substantive jurisdiction. It is simply a nullity. It seems to me that, whatever the position in relation to setting aside, there is in principle nothing in the declaration made by Thomas J in the present case which deprived the Tribunal of jurisdiction to make a proper award between the two parties to the arbitration agreement and the reference.

It therefore seems to me that the Tribunal was not functus officio when it came to consider making the Second Award and that the Second Award does not suffer from any lack of substantive jurisdiction such that it can be challenged under Section.67 of the English Arbitration Act 1996.17


In all the above three cases there was an element of confusion on the part of one of the parties. It would be fair to suppose that this had arisen because of a differing cultural approach by a party from a developing country. The courts have to determine each such challenge according to their conscience and what the court considers to be just and right. In all the three cases the English courts gave precedence to doing justice rather than to the principle of finality. In England, judges are permitted to do this. This is commendable; long may this practice continue.

1 Russell on arbitration (19th & 20th editions)

2 Ras Bihari v. The King-Emporer (1933) 50 TLB 1

3 Lloyds 405 (1984)

4 Lloyds 405 (1984)

5 Lloyds 405 (1984)

6 (1992) 2 Lloyds 407

7 (1992) 2 Lloyds 407

8 (1992) 2 Lloyds 407

9 (1992) 2 Lloyds 407

10 (1992) 2 Lloyds 407

11 (1992) 2 Lloyds 407

12 Judgement delivered on 16th April 2002 by Mr Michael Bindle Q.C. sitting as deputy judge of the High Court.

13 Judgement delivered on 16th April 2002 by Mr Michael Bindle Q.C. sitting as deputy judge of the High Court.

14 Judgement delivered on 16th April 2002 by Mr Michael Bindle Q.C. sitting as deputy judge of the High Court.

15 Judgement delivered on 16th April 2002 by Mr Michael Bindle Q.C. sitting as deputy judge of the High Court.

16 Hussman V Al-Ameen (2000) 2 Lloyds 83

17 Hussman V Al-Ameen (2000) 2 Lloyds 83

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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