The recent decision of the Judicial Committee of the Privy Council (the "Privy Council") in RAV Bahamas v Therapy Beach Club1 has thrown significant light on certain fundamental features of the law relating to the setting-aside of arbitral Awards in the Bahamas on the basis of "serious irregularity" ;2 and, by extension, the likely interpretation of section 68 English Arbitration Act 1996 (the "English Act") and common law in the same respect. Critically, the decision offers rare guidance on the manner in which a Tribunal must address the parties' arguments and the evidence adduced by them.
In 2011, Therapy Breach Club ("Therapy"), an American company, secured a lease of certain land in the Bahamas from RAV Bahamas and its subsidiary, the Bimini Bay resort (collectively, "RAV"), in order to launch the Sakara Beach Club (the "beach club"). The lease had a term of three years, with an option belong to Therapy to extend for a further period of three years "subject to the parties agreeing on the rents to apply to the renewal term" by giving six months' notice. Under the agreement, Therapy was to make a payment of certain amounts to RAV, and RAV was to build the beach club within 120 days of receipt of payment.
Therapy alleged that, even by 2013, the beach club was still incomplete; Therapy had, at its own expense, attempted to complete it; and RAV had therefore failed to comply with its contractual obligations. On the other hand, RAV commenced proceedings before the Supreme Court of the Bahamas (the "Supreme Court") seeking a declaration that the lease itself was void on the ground that it violated Bahamian legislation relating to landholding by foreign entities. Before the decision, RAV demolished what existed of the beach club and evicted Therapy. RAV's claim that the lease was void was ultimately rejected by the Supreme Court.
Subsequently, RAV and Therapy entered into an ad-hoc arbitration agreement to resolve the disputes arising under the lease.
Therapy advanced a claim for damages for loss of profits in respect of a six-year period purportedly covered by its lease of a plot of land on which the beach club sat – however, that six-year period represented the initial three-year lease that had been granted, plus a further period of three years which had not yet been granted and the grant of which was contingent on suitable rent being agreed. Therapy also claimed that there had been a variation of the lease such that the adjoining Atlantic Seafood restaurant was also covered within its scope. Therapy's damages claim took this into account.
For its part, RAV denied any liability for damages of any kind in its written submissions, but did not expressly set out its position on the additional three-year period for the lease.3 It did, however, in its oral submissions, then raise the arguments that Therapy was not entitled to damages for the additional three-year period on the bases that the option for renewal was never exercised and, in any event, was void for uncertainty and therefore unenforceable and illusory.4 Therapy objected to the belated nature of the argument relating to the option being illusory.5
- concluded that Therapy had been wrongfully evicted and granted its claims for trespass, conversion and unlawful interference with economic interests.
- rejected Therapy's claim for damages in relation to the adjoining restaurant 'Atlantic Seafood' on the basis that there had been no variation of the lease.
- accepted the damages valuation of Therapy's expert which included a three-year renewal, but reduced the USD 12 million valuation proposed by Therapy's expert in two discrete steps — first, reduction by a third to account for the finding in relation to Atlantic Seafood and second, a further 15 per cent reduction to take into account the fact the expert's figures were based on his memory, and not contemporaneous evidence.
- Awarded Therapy special and exemplary damages amounting, respectively, to USD 370,000 and USD 2.5 million.
Crucially, the arbitrator made no ruling was made as to the whether RAV's objection as regards the further three-year period had been made in a timely fashion; and no discounting of the USD 12 million figure (which assumed the renewal of the lease) was carried out.
RAV challenged the Award before the Supreme Court on the basis of "serious regularity". Under the relevant provision – section 90 of the Bahamian Arbitration Act 2009 (the "Bahamian Act") – court intervention is only possible where there is a "serious irregularity", which means an irregularity of one or more of the kinds listed in the provision "which the court considers has caused or will cause substantial injustice".6
Nine (9) different kinds of "serious irregularity" are identified in section 90 of the Bahamian Act, including:
- "failure by the Tribunal to deal with all the issues that were put to it";7
- failure to provide equal treatment under section 44 of the Act;8 and
- uncertainty or ambiguity as to the effect of the Award;9 to
- failure to conduct proceedings in accordance with the procedure agreed by the parties.10
As the Privy Council noted, the Bahamian Act is "similar in structure and content to the 1996 Act and many of its provisions are materially identical";11 and section 90 of the Bahamian Act is identical to section 68(2) of the English Act. The threshold to establish serious irregularity is extremely high under both provisions.12
Before the Supreme Court, RAV alleged serious irregularity on two principal grounds — first, that the damages should not have extended beyond the original lease period and, in that respect, the arbitrator had failed to deal with its arguments on the unenforceable nature of the option clause and the effect of Therapy's failure to provide a six-month notice as required under the lease agreement (the "Renewal Issue"); and second, that disaggregation of the losses claimed was carried out without first being addressed by the parties in submissions, and was not supported by evidence ("Disaggregation Issue").
The Supreme Court allowed the appeal on both grounds; and remitted the matter to the arbitrator, in part, for reconsideration of the issues. It also directed that RAV be allowed to make submissions on the Disaggregation Issue and that the arbitrator consider the issue of "whether the Award could properly reflect any losses in the option or renewal period".13
Therapy challenged the decision of the Supreme Court before the Court of Appeal of the Bahamas.14 By a majority, the Court of Appeal reversed the Supreme Court's decision on the ground that the Supreme Court had not separately found that the irregularities had caused substantial injustice to RAV.15 It further found that (1) there was no evidential basis for the Supreme Court's finding on the Renewal Issue, and that (2) the Disaggregation Issue was wrongly decided by the Supreme Court since the parties knew it to be a central issue and they had the opportunity to make "whatever representation" they wished to make in the closing stage of the proceedings. 16 The Court of Appeal further noted that RAV's complaints were, in essence, alleging errors of law and should have been brought under section 91 of the Bahamian Arbitration Act (being the equivalent to section 69 of the English Act), and not section 90 (on the basis of "serious irregularity").
RAV appealed the Court of Appeal's decision before the Privy Council.
Findings of the Privy Council
The Privy Council considered both the Renewal Issue and the Disaggregation Issue.
The Privy Council found that a "serious irregularity" within the meaning of section 90 of the Bahamian Act had occurred on the bases that:
- the renewal of the lease, which was crucial to the determination of Therapy's entitlement to damages for three years of a six-year claim period, had been put before the arbitrator, but she had failed to deal with it;17 and
- the arbitrator did not rule that the objection that the renewal clause was illusory could not be raised by reason of its late introduction (such that it was 'in play'), but then failed to address it.18
The Privy Council considered that the option for an additional three years was central to the determination of the Award on damages — and that a failure to deal with it might well have affected the outcome of the Award, and thereby caused substantial injustice.19
On the threshold issue relating to the alleged failure of RAV to demonstrate "substantial injustice", the Privy Council confirmed that the absence of an express and separate allegation of "substantial injustice" in RAV's application was not fatal to an application to set aside an Award on the basis of a "serious irregularity" pursuant to s. 90 of the Bahamian Act (and, by analogy, pursuant to s. 68 of the English Act) on the basis that an allegation that "substantial injustice" had arisen as a result was implicit in any application brought under this provision.20 As to proof of such allegation, the Privy Council found that it is open to the judge to conclude "substantial injustice" from the nature of the allegation; and while it was preferable that the "substantial injustice" suffered be expressly articulated, it is not necessary for a judge to do so.
The Privy Council also rejected the argument that the challenge was, properly construed, more in the nature of the appeal on a point of law. It held that the submission was that the arbitrator committed a "serious irregularity" by failing to reach any decision at all on the lease renewal point, not that she reached a decision, but misapplied the law in doing so (for which application the applicant only need show that the point which was not dealt with is reasonably arguable).21
The Privy Council considered the Disaggregation Issue in its two discrete parts — first, relating to the reduction by one-third on account of the Atlantic Seafood restaurant; and the second relating to the further 15 per cent deduction. The former was found to be a serious illegality; the latter was not.
As to the discounting by a third, the Privy Council agreed that RAV had not had an opportunity to canvass either the fact of, or the evidence supporting, the one-third deduction and that, as such, that constituted a "serious irregularity". No mention of a proposed one-third deduction in respect of damages was made during the hearing, with the deduction appearing for the first time in the Award itself.
As to the 15 per cent deduction applied by the arbitrator, the Privy Council did not find that it amounted to a "serious irregularity" by reason of the fact that the expert relied on memory rather than documentary evidence (as asserted by RAV). There were two reasons for this:
- Unlike the one-third deduction, the issue relating to adjustment to account for the imprecise nature of the expert evidence was 'in the arena' and 'in play' and parties had therefore had the opportunity to make such submissions as they considered fit. In those circumstances, the arbitrator could not be faulted for making an "impressionistic deduction" when RAV had – but failed to make use of – ample opportunities to address the expert's evidence.22
- The complaint was "in essence" better characterised as an error of law since the complaint was, properly construed, that one percentage figure was chosen over another. 23
Successful challenges under section 68 are incredibly rare. The last significant decision on section 68 (in Republic of Kazakhstan v World Wide Minerals) held that a "serious irregularity" had only arisen at the point at which a tribunal computed damages "without having published an Award setting out its findings in relation to the breach issues and giving both parties the opportunity to adduce evidence and/or advance submissions".24
The more nuanced case of RAV v Therapy therefore gives arbitrators further food for thought. The key takeaways from the decision are the following:
- First, that the express "putting" of a question before a Tribunal is not a necessary pre-condition for it to then to become an issue on which the Tribunal is obliged to rule in their Award. If the Tribunal's attention is "sufficiently clearly drawn" — that is sufficient. These arguments/ contentions must be clearly identified, and to the extent practicable, the Tribunal should provide reasons for their rejection.25 This applies to points of fact, law, or mixed questions of law and fact. This means that, in order to confidently preclude any implication of any "seriously irregularity", arbitrators should consider setting out clearly the sequence of antecedent findings leading to their ultimate conclusion on a given issue; and ensure that all rival arguments are dealt with. The courts will be slow to conclude the rejection of an argument by inference. However, if the Tribunal relies on some evidence and the pleaded case before it — whatever its nature— to support its conclusions, the courts will not engage in a review of its adequacy.
- Second, the constraints set out by the RAV v Therapy decision have an impact on the conduct and design of the arbitration proceedings as such. In civil law systems, there is an obligation for a judge (or an arbitrator) not to surprise the parties by arriving at a decision beyond the reasonable contemplation of the parties.26 The decision in RAV v Therapy imputes a similar obligation on arbitrators as a matter of English law. This is crucial and should be considered especially carefully by arbitrators when confronted — as may often happen — with cases from both parties about neither of which they are entirely convinced, which then requires charting a course which does not align with either party's case. Tribunals may consider a variety of safeguards to address this: both before and after the proceedings in the arbitration are closed. Before the close of proceedings, Tribunals could consider engaging with the parties on a variety of hypothetical situations or invite the parties' submission on questions designed to assist the Tribunal in its decision making. Should this issue arise after the proceedings are closed, Tribunals could consider issuing partial Awards on an anterior issue (such as liability); which would allow the parties to then make further submissions on subsequent issues (such as quantum) with the benefit of the Tribunal's decision. If a case is likely to be complex from the outset, it is useful to consider bifurcation at an early stage of the proceedings.
- Third, as a more practical suggestion, this case stands out as a reminder of the contribution of arbitral institutions in the arbitral process. Since RAV v Therapy was an ad-hoc arbitration, it is unlikely that the arbitrators had the benefit of a "second pair of eyes" reviewing the form and contents of the Award (whether by way of formal or informal scrutiny) in the manner that arbitrators have come to expect of leading arbitral institutions. Tribunals constituted in ad-hoc proceedings could consider referring to Award-checklists issued by leading arbitral institutions by way of helpful guidelines in order to ensure that all relevant material on the record is fairly reflected and dealt with in the Award in order to help minimize the risk of a successful challenge.
Parties too can also derive several guidelines from this decision. One of them is that each party must be alive to all foreseeable issues that may have been 'in play'. Further, parties should, as a rule, ensure that they make clear and specific submissions on all obvious issues that are reasonably likely to be the subject of a Tribunal's decision.
In conclusion, it is fair to look at section 68 of the English Act as providing parties with a remedy should a Tribunal fail to comply with its duty under section 33 of the English Act to conduct proceedings in a fair and impartial manner. While the threshold for finding "serious irregularity" remains extremely exacting, the more complex a given dispute, the more likely it is to stress-test the existing procedural safeguards and practice, and hence this threshold. It follows that a reasonable mantra for both arbitrators and parties alike should be "when in doubt, discuss explicitly".
1. RAV Bahamas Ltd and another (Appellants) v Therapy Beach Club Incorporated (Respondent) (Bahamas)  UKPC 8 ("RAV v Therapy").
2. RAV v Therapy, ¶ 25.
3. Id, ¶ 57.
4. Id, ¶ 58.
5. Id, ¶ 59.
6. RAV v Therapy, ¶ 28.
7. Bahamian Act, Section 90(2)(d).
8. Which is materially identical to section 33 of the English Act.
9. Bahamian Act, Section 90(2)(e).
10. Bahamian Act, Section 90(2)(c). Other grounds include — failure to comply with section 44, the Tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction), excess of power by any person vested with powers in relation to the proceedings, the Award being obtained by fraud or the Award or the way in which it was procured being contrary to public policy, failure to comply with form requirements of an Award, and any irregularity in the conduct of the proceedings or in the Award which is admitted by the Tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the Award.
11. RAV v Therapy, ¶ 26.
12. RAV v Therapy, ¶ 52.
13. Id, ¶ 14.
14. The Court of Appeal is the highest appeal court in the Bahamas. See further: https://www.bahamasjudiciary.com/courts/
15. RAV v. Therapy, ¶ 17.
16. Id, ¶18.
17. Id, ¶ 60.
18. Id., ¶ 60.
19. Id., ¶ 71.
20. Id., ¶ 73.
21. Id., ¶ 77.
22. Id., ¶ 86.
23. Id., ¶ 86.
24. The Republic of Kazakhstan v World Wide Minerals & Anr,  EWHC 368.
25. On the facts, the Privy Council found that it could not "be inferred that [an arbitrator] rejected the point in circumstances where [they] did not refer to it at all, still less provide any reasons for its rejection" (Id., ¶ 61.)
26. Decision of the Swiss Federal Supreme Court, 30 September 2003, DFT 130 III 35, ¶¶ 5-6; Decision of the Swiss Federal Supreme Court, 9 February 2009, 4A_400/2008, ¶ 3.1; Decision of the First Civil Law Court, 10 February 2021, 4A 430/2020, ¶ 5.1
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