UK: English High Court Tackles Serious Irregularity In LCIA Arbitral Award

Last Updated: 11 March 2015

Challenges to arbitral awards on serious irregularity grounds are rarely pressed and very seldom succeed. The recent English1. High Court judgment in The Secretary of State for the Home Department v Raytheon Systems Limited2. ("First Judgment") is however one such occasion where a challenge, advanced under sections 68(1) and 68(2)(d) of the English Arbitration Act 1996 ("Act"), met with success. Consequent upon that ruling, and in a further judgment3. ("Second Judgment"), the High Court set aside a London Court of International Arbitration ("LCIA") award of approximately £225 million.

Key Aspects

There are two components to these related judgments of most interest. 

First is the serious irregularity grounds for challenging arbitral awards pursuant to Section 68 of the Act.4. Section 68 lists various forms of serious irregularities which, individually or cumulatively, potentially provide for grounds of challenge. At first blush, the ambit of those grounds appears to be relatively wide. However, any party seeking to rely upon a Section 68 ground must demonstrate the further threshold ingredient that "substantial injustice" has been, or will be, caused by its occurrence. Although that ingredient was successfully demonstrated in the instant case, Mr Justice Akenhead nonetheless affirmed that the bar is set very high5. and that curial relief will be exercised only where, among other matters, the tribunal has gone so wrong in the conduct of the arbitration that "justice calls for it to be corrected".

Second is the issue of what the appropriate relief ought to be where serious irregularity (causing substantial injustice) is properly established6.—specifically, whether the award should be remitted or set aside and the factors weighing for and against each. In this regard, His Lordship's judgment provides some very useful, and relatively rare, guidance on this issue.

Arbitration Background

In 2007, the Secretary of State for the Home Department ("Home Office") engaged US defence company Raytheon Systems Limited ("Raytheon") to design, develop and deliver a £750 million electronic border control system. However, under a new Government, the Home Office purported to terminate Raytheon's contract in 2010, citing, among other matters, the significant delays suffered to the milestone deliverables. 

Raytheon denied that the termination was lawful and, on that basis, pressed substantial damages claims against the Home Office. A London seated LCIA arbitration was commenced by the Home Office, and a tribunal was constituted comprising UK and US wing arbitrators and a Canadian chair.

A 42-day substantive hearing on liability and quantum took place, with oral evidence of fact and opinion drawn from a total of 58 witnesses, following which the tribunal rendered its Partial Final Award in August 2014 ("Award"). In agreeing that the contract had been unlawfully terminated, the tribunal directed the Home Office to pay Raytheon damages of approximately £225 million including costs and interest.

The Challenge

Invoking Section 68 of the Act, the Home Office applied to the High Court (Technology and Construction Court) for the Award to be set aside and declared to be of no effect on grounds of serious irregularity having occurred.7. The Home Office contested that there existed a serious irregularity affecting the tribunal, the proceedings or the Award arising from a "failure by the tribunal to deal with all the issues that were put to it"8.—specifically, the tribunal's omission to deal with various matters essential to the Home Office's case on both liability and quantum.9.

Upon hearing the challenge, Akenhead J handed down two judgments.

First Judgment—Serious Irregularity?

Of the various serious irregularity grounds advanced by the Home Office, Akenhead J determined that the tribunal had failed to address two essential matters that had been put to it.

Questions Concerning Liability. The tribunal had not assessed whether entire or substantial responsibility for the delay (including associated disruption and inefficiencies) rested with Raytheon. In His Lordship's view, there was "little doubt however that, if the tribunal had considered the issue in such terms, there is a real chance that it would have to reconsider some of its key findings".10. Stemming from that failure, Akenhead J was satisfied that substantial injustice had been established, not only as relates to the delay issue having not been addressed, but also in light of the large amount of time, resources and cost spent by the parties in presenting their respective cases and evidence on the issue before the tribunal.

Questions Concerning Quantum. Resultant of the tribunal's omission to deal with liability on the delay issue, the Home Office could credibly contend that it should not have been on the hook for the attendant costs awarded against it.11. Substantial injustice had occurred because had the tribunal dealt with liability, those costs may have been excised from the overall quantum equation.

Accordingly, the Home Office's challenge was upheld.

Second Judgment—Appropriate Relief?

Having therefore concluded that serious irregularity was fully made out, it fell upon Akenhead J to determine what the appropriate relief ought to be—specifically, whether the Award (in whole or part) should be remitted, set aside or declared to be of no effect. 

On analysis of the Act's Section 68(3) wording, among other observations, His Lordship stated that where serious irregularity had been found to have occurred12.

  • Plainly, remission is the "default" option, and the Court cannot set aside unless it would be "inappropriate" to remit.
  • The burden of establishing that it would be inappropriate to remit must be on the party seeking relief other than remission, and what must be established is that where proven serious irregularity exists, it would be inappropriate to remit to the existing arbitral tribunal.
  • There is no authority which suggests that it will invariably be inappropriate to set aside the Award where Section 68(2)(d) is the relevant serious irregularity ground.
  • There is little or no difference in practice between the setting aside and declaration of no effect remedies.
  • In deciding whether to remit or set aside, it is incumbent upon the court to consider all the circumstances and background facts relating to the dispute, the Award, the arbitrators and the overall desirability of remission and setting aside including all attendant costs, time and justice ramifications.
  • There is no previous authority which substantially mirrors the facts of the instant case, and there are relatively few reported decisions on Section 68(2)(d) of the Act.

Akenhead J proceeded to consider various cases13. where the underlying facts led to a conclusion that setting aside was the appropriate relief. The cases highlighted potentially material factors such as where a serious miscarriage of justice affecting evidence had occurred and the arbitrators could not reasonably be expected to be able to approach the matter afresh, where confidence in the arbitrators was lost, where remission would require a full re-hearing or where remission would inevitably lead to the award being reversed.

Concluding that the Award in this instance ought to be set aside in whole for re-hearing by a fresh arbitral tribunal, His Lordship reasoned14. a number of determinative factors, including:

  • The grounds advanced by the Home Office under Section 68(2)(d) of the Act were towards the more serious end of the spectrum of seriousness in terms of irregularity. That the tribunal took some 16 months after final oral submissions to produce the Award "might lead a fair minded and informed observer to wonder (rightly or wrongly) at least whether (sub-consciously) the tribunal was seeking some sort of shortcut". 
  • It would be "invidious and embarrassing [for the tribunal] to be required to try to free [itself] of all previous ideas and to re-determine the same issues", and such exercise could well create undesirable tension and pressure.
  • If the tribunal were to again reach exactly the same conclusions, albeit conscientiously and competently, that "might well lead to a strong belief objectively that justice had not been or not been seen to have been done". 
  • Any significant re-drawing of the issues in the arbitration appears improbable. Much of the factual and expert evidence adduced before the existing tribunal would be re-deployed before the fresh tribunal. 

Observations

Some important points arise from this case.

First, it timely reminds all arbitrators that, regardless of seniority or experience, it is incumbent upon them to exercise abundant caution by ensuring that awards squarely address all essential matters put by the parties. Any such failure not only runs the risk of attracting curial scrutiny but also has the potential to indelibly stain professional reputations (however unmerited).

Second, despite the success enjoyed by the Home Office in the instant case, it very much remains the position that any party invoking a Section 68 challenge will be required to surmount a high evidentiary bar—in particular, to meet the requirement that a party must properly establish that substantial injustice has been or will be caused.

Third, Mr Justice Akenhead's thorough analysis and reasoning adds considerably to an otherwise slim corpus of authority on Section 68 serious irregularity challenges. Whilst not setting a new watermark on the law and practice relating to remission or setting aside of arbitral awards, His Lordship's instructive judgments will nonetheless provide useful guidance to any parties contemplating similar challenges. 

Of striking interest, in setting aside the Award for the proceedings to be re-heard afresh, His Lordship stated15.:

...I would anticipate that, on many of the individual issues on which each party lost, the losing party would not seek to re-argue them; the sanction will be costs so that, if a party which lost on a given factual or legal issue before the current tribunal argues it again and loses it before the new tribunal, it should not be surprised when it faces an indemnity cost sanction, whatever the overall result....

At one level, His Lordship's portent comments carry merit by reminding the parties of their duty to conduct the arbitration fairly, efficiently and expeditiously. Whether a court can reach so far as to augur cost sanctions in relation to what will be, strictly speaking, a de novo arbitral proceeding, however, is slightly more controversial. 

Finally, His Lordship granted the parties leave to appeal on both judgments. Should any appeal(s) ensue, we will provide a further case update.

Footnotes

1. All references to England also include Wales, as they together constitute a single jurisdiction.

2. [2014] EWHC 4375 (TCC).

3. The Secretary of State for the Home Department v Raytheon Systems Limited [2015] EWHC 311 (TCC).

4. The subject of His Lordship's First Judgment.

5. See in particular the useful summary provided at paragraph 33 of His Lordship's First Judgment.

6. The subject of His Lordship's Second Judgment.

7. Per section 68(1) of the Act.

8. Per section 68(2)(d) of the Act.

9. Being an alleged failure to address two questions on liability and three questions on quantum. Specifics of those matters are summarised at paragraphs 34 to 39 of His Lordship's First Judgment.

10. At paragraph 48 of His Lordship's First Judgment.

11. Amounting to some £126 million.

12. See paragraphs 3 to 5 of His Lordship's Second Judgment.

13. A summary analysis of which is contained at paragraphs 5 to 12 of His Lordship's Second Judgment.

14. See paragraph 23 of His Lordship's Second Judgment.

15. At paragraph 23 of His Lordship's Second Judgment.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions