United States: English High Court Sets Aside International Arbitral Award For Failure To Comply With English Rule In Browne v. Dunn

In an interesting May 2019 judgment, the English High Court in P v. D [2019] EWHC 1277 (Comm) set aside an arbitral award in a London-seated international commercial arbitration on the basis that the tribunal had based its award on a finding of fact on a core issue not put to a witness in cross-examination, in contravention of the English rule in Browne v. Dunn. However, the common practice in international commercial arbitration, reflected in the IBA Rules on the Taking of Evidence in International Arbitration (the "IBA Rules"), is for witness statements to stand as evidence-in-chief and for witnesses only to be cross-examined where requested by a party. If a party does not request the appearance of a witness, and thus does not cross-examine on any core issues, that party is not deemed to have agreed to the correctness of his/her witness statement. Against this background, P v. D serves as an important and somewhat disconcerting reminder of the risk that supervisory and enforcement courts may assess arbitral proceedings against domestic procedural standards. 

Handling of Witness Testimony in International Arbitration

The English Arbitration Act 1996 ("EAA") makes clear that English-seated tribunals are not bound by domestic procedural and evidentiary rules. Consistent with international standards,1 section 34(1) of the EAA provides that it is for "the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter." While tribunals are free to decide procedural and evidential matters (absent party agreement and/or contrary provision in the applicable procedural rules and/or legislation), it is common for tribunals to provide in their first procedural order that the IBA Rules shall be used as guidelines for evidentiary issues. Even if not formally adopted, it is common practice in international arbitration for tribunals to use the IBA Rules as a guide in respect of discovery and evidentiary issues.2

The customary approach in international arbitration is for the parties to submit detailed witness statements (and, often, supplementary witness statements), which stand as the witness' examination-in-chief. As a result, direct examination in arbitration is highly circumscribed and limited to an introduction of the witness to the tribunal, adoption by the witness of his/her witness statement, and confirmation that it contains no inaccuracies. Direct examination is often limited to no more than 5-10 minutes for the efficient use of precious hearing time and to allow more time for cross-examination. In international arbitral practice, a party is entitled (but not required) to request the presence of a witness for cross-examination (IBA Rules, Article 8.1). If a party does not request the appearance of a witness, and therefore does not cross-examine the witness on a matter contained in a witness statement, that party shall not be deemed to have agreed to the correctness of the content of the witness statement (IBA Rules, Article 4.8). These practices promote efficiency by enabling parties to cross-examine only on matters as necessary to their case, a sensible accommodation given that cross-examination is typically time limited.

This well-established arbitral practice is different to that adopted in English litigation, in which parties are typically required to comply with the rule in Browne v. Dunn [1894] 6 R 57. The rule provides that if a party intends to challenge the credibility of a witness' testimony on a particular point, it must challenge the witness on that point during cross-examination so that he/she has an opportunity to explain. If this is not done, that party may be precluded from asserting that the witness' evidence on that point be rejected by the court. The rule is, however, not without its exceptions. It is not violated if a material issue is not put to a witness and the witness knows or should have known that his/her version of events is being challenged or that adverse inferences might be drawn against him/her. Nor does the rule inflexibly require that counsel put every minor point to a witness that might be used against him/her. The paramount considerations are fairness to the witness, particularly where his/her honesty and/or integrity are being questioned, and the overall procedural fairness to the parties.

The Tribunal's Rulings in the Arbitration

Company P borrowed money from Company D pursuant to a written agreement containing a "no oral modification" clause.3 P claimed that Mr. E of P and D's principal, Mr. D, had orally agreed to extend the loan repayment date by two years, from January 1, 2018 to January 1, 2020, which was orally confirmed during a subsequent meeting between Mr. E and Mr. D (with others present). P argued that this agreement meant that the loan was not yet due or, in the alternative, that D was estopped from seeking an early repayment. D argued that (likely as both a factual and legal matter) no extension was ever agreed between Mr. E and Mr. D, and P was obliged to repay the loan.

Mr. E and Mr. D submitted witness statements and were cross-examined at the hearing. From the Court's account of the arbitration, it does not appear that the tribunal at any time directed that: (a) the rule in Article 4.8 of the IBA Rules would not apply; and/or (b) the domestic English rule in Browne v. Dunn would apply. In the Court's account of the hearing, D's counsel did not cross-examine Mr. E on the subject of the first meeting at which the loan extension had allegedly been agreed, beyond a passing reference when being cross-examined on the second meeting. During or after the cross-examination, the tribunal's chairman pointed out to D's counsel that he had not put any questions to Mr. E on this core issue. 

After considering, inter alia, Mr. E's and Mr. D's testimony, the tribunal held in its award that there was an estoppel that precluded D from demanding payment of any of the loans before January 1, 2018, but there was neither an agreement nor an estoppel extending the loan repayment date to January 1, 2020. The tribunal commented that D's counsel's failure to cross-examine Mr. E on the first meeting was "somewhat surprising." In the Court's account, the tribunal "focused on Mr. E's evidence of the meeting" despite that failure. The tribunal held in a further award that there had been a shared assumption between P and D that the discussed extension would "in due course be incorporated in a wider package which would cover other things as well," and the extension was "contingent until the wider package [was] fully agreed." Therefore, unless and until all of the elements of the wider package were agreed, the shared assumption had no legal effect and was not binding.

Application to Set Aside the Award in P v. D

P applied, under section 68 of the EAA, to set aside the award. Section 68 empowers the English courts to set aside an award in a UK-seated arbitration for serious irregularity. That power to set aside is only available in "extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected." Section 68(2) enumerates nine kinds of irregularity that might warrant setting aside an award if "substantial injustice" has been caused to the applicant.

One enumerated irregularity is the tribunal's failure to comply with its general duty in section 33 of the EAA,4 namely to act fairly and impartially as between the parties and to give each party a reasonable opportunity of putting his/her case and dealing with that of his/her opponent. P argued that the tribunal had breached its general duty in the following two ways:

  1. Ground 1: P alleged that either the extension agreement or the estoppel arose at the first meeting between Mr. E and Mr. D and was confirmed at the subsequent meeting. Although D did not cross-examine Mr. E regarding what was said at the first meeting, the tribunal concluded that there was no agreement or estoppel. The Court referred to this as "Ground 1."
  2. Ground 2: In respect of the tribunal's conclusion that there was a shared assumption at the meetings, but that it was conditional or contingent and hence of no effect, P argued that there was similarly no cross-examination, and, further, D did not address this case adequately or at all and never argued or dealt with the case during the hearing, so it was not open to the tribunal to draw this conclusion. The Court referred to this as "Ground 2."

In respect of Grounds 1 and 2, P relied on the domestic English rule in Browne v. Dunn to argue that D had been obliged to bring any challenge to Mr. E's credibility on a core issue to his attention during cross-examination so that he would have a chance to explain.

The High Court's Decision to Set Aside the Award for Serious Irregularity

Notwithstanding that the underlying proceedings were an international arbitration, Sir Michael Burton of the High Court found (without further discussion) that the Browne v. Dunn rule was applicable. Although modern authorities accept that it is impracticable to challenge a witness on every minor point, especially when lengthy witness statements are submitted, the Court considered that the exceptions did not apply in this case because the existence of the alleged oral agreement to extend the repayment date was "the core issue" in dispute - and fairness required that Mr. E be given a fair opportunity to deal with the allegation that he was not speaking the truth.

The Court noted that the tribunal's chairman had specifically expected the alleged oral agreement at the first meeting to be dealt with in Mr. E's cross-examination. The Court dismissed the submission that P had sufficient notice of D's case that Mr. E's testimony lacked credibility from D's pleadings prior to Mr. E's cross-examination. The judge considered that that notice might have been sufficient where witnesses gave evidence-in-chief, but P could not have had sufficient notice where witness statements stood as examination-in-chief (as was apparently the case) and that witness evidence was not challenged in cross-examination. On Ground 2, the Court concluded that D failed to pursue a case of a conditional or contingent shared assumption and that P was not given any opportunity to deal with the point, which the Court considered a breach of natural justice.  Accordingly, the Court set aside the award.

Observations on P v. D and Potential Implications

The Court's decision in P v. D is a rare example of a successful challenge to an arbitral award on procedural fairness grounds. The account presented in the judgment points to a clash between established practice in international commercial arbitration and the procedural expectations of the supervisory court.  On the Court's account:

  • It does not appear that the tribunal directed at any time that (a) the rule in Article 4.8 of the IBA Rules would not apply, and/or (b) the rule in Browne v. Dunn would apply.
  • It appears that D's counsel was not directed in advance to cross-examine Mr. E on all core issues. While the tribunal pointed out that D's counsel had not yet covered the "core issue" of the first meeting, this was only done during or at the end of cross-examination.
  • While perfunctory, D's counsel did challenge Mr. E's account of the first meeting by putting to him that his testimony was nonsense (which, of course, Mr. E denied).
  • D had disputed P's account of an extension in its Statement of Defense as "completely and utterly unsubstantiated" and again in its counsel's skeleton argument prior to hearing.

With respect to the alleged violation of the rule in Browne v. Dunn, while D's counsel's failure to cross-examine Mr. E might have been unsatisfying to the arbitrators, the failure does not appear to have violated the procedures established by them or caused them to perceive a procedural defect.  With respect to the alleged failure by D to pursue a case of a shared assumption, it seems that the tribunal was entitled to draw that factual conclusion from the evidence before it, whether or not D positively advanced that conclusion at the hearing. It is not for the courts to second-guess the factual findings reached in a final and binding arbitral award.

The judgment shows that in deciding to set aside the award for serious irregularity, the Court assessed the tribunal's conduct of the arbitration against solely domestic procedural and evidentiary standards and made no reference to practices commonly observed in international commercial arbitration, including, importantly, the IBA Rules. P v D thus serves as an important and somewhat disconcerting reminder of the risk that supervisory and enforcement courts may assess arbitral proceedings against domestic procedural standards. This precedent may have problematic implications for future awards, given that London is often chosen as a seat of arbitration merely for neutrality or convenience by parties from foreign countries and diverse legal traditions, including those that do not put the same emphasis on oral testimony as the English tradition.

Footnotes

1 See, e.g., Article 19 of the UNCITRAL Model Law on International Arbitration.

2 Born, International Commercial Arbitration (Second Edition), page 2212.

3 Although the tribunal stated that it was not necessary to its conclusion, the Tribunal also noted that the loan agreements included a "no oral waiver" clause.

4 EAA, section 68(2)(c).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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