UK: Casefile: RJ v. HB [2018] EWHC 2833 (Comm)

Does section 68 of the Arbitration Act 1996 allow the court to remove an arbitrator?

Section 68 of the English Arbitration Act 1996 (s.68) allows the English courts to set aside an award on grounds of serious irregularity. In a rare example of a successful challenge under s.68, the Commercial Court in the recent case of RJ v. HB [2018] EWHC 2833 (Comm) partially set aside an ICC award in a US$75 million banking dispute. However, the judge (Mr Justice Andrew Baker) decided the court has no power under s.68 to remove an arbitrator. To remove an arbitrator, a party must make a separate application under section 24 of the Arbitration Act 1996 (s.24).

Facts of case

The claimant in the arbitration was a businessman (HB) who owned a controlling interest in a bank (Bank A) and wanted to buy a controlling interest in another bank (Bank B).

The respondents were another businessman (RJ) and an investment company he controlled (L Co). RJ agreed to give HB US$75 million (through L Co) so HB could buy Bank B. Under that agreement, it was possible that RJ would receive a 25 per cent interest in Bank B from HB after Bank A and Bank B merged. HB did not transfer the 25 per cent interest in Bank B to RJ and said he did not have to do so.

The premise of HB's position was that RJ had decided not to take the 25 per cent interest and had, therefore, breached his obligation to get the necessary permissions to do so. RJ and L Co agreed they had not taken the 25 per cent interest but said their failure to do so had not involved any breach of any obligation.

The sole arbitrator found that RJ had breached the agreement. Nonetheless, his award declared that RJ was the beneficial owner of the shares HB had bought in Bank 2 with RJ's US$75 million, stating that those shares referred to the 25 per cent interest envisaged by the agreement. No party had sought such a declaration or relief during the arbitration.

Serious irregularity

The judge found that nothing during the arbitration suggested the arbitrator was considering making an award in the terms he did. For an arbitrator to decide a dispute on a basis significantly different to anything raised by or with the parties during the arbitration did amount to a serious irregularity if it would cause substantial injustice. Therefore, the judge further decided the award should be set aside. That left the question – should the original arbitrator be the person to consider the issue afresh?

Removal of an arbitrator

Previously, conflicting case law meant that it was unclear whether s.68 allowed a court to remove an arbitrator if it decided that serious irregularity affected his award. Whether such a power existed under s.68, or only under s.24, was an important issue of principle. Under s.24, the relevant arbitrator is a necessary party to the application. However, this is not the case for an application under s.68 to set aside an award affected by serious irregularity.

The judge decided that because the arbitrator was not a party to the s.68 proceedings before him, it would be inappropriate for him to decide whether to remove the arbitrator. However, he added that if it had been necessary to decide whether to remove the arbitrator, s.68 did not give the court power to do so. Instead, a party needed to make a separate application under s.24.

Mr Justice Andrew Baker's comments are consistent with the decisions in Norbrook Laboratories Ltd v. Tank [2006] EWHC 1055 (Comm) and Brake v. Patley Wood Farm LLP [2014] EWHC 1439 (Ch). In those cases the parties assumed that they had to make an application under s.24. However, in RJ v. HB, RJ had assumed that s.68 allowed the court to remove an arbitrator if serious irregularity affected his award. The judge in Secretary of State for the Home Department v. Raytheon Systems Ltd [2015] EWHC 311 (TCC), had agreed with that approach in a case where no s.24 application was made. Mr Justice Andrew Baker's remarks in RJ v. HB suggest that he believes that judge's decision was wrong.

The need to make a s.24 application to remove an arbitrator when that arbitrator has to decide an issue afresh may cause difficulties if that arbitrator also remains in place to decide other outstanding issues. It remains to be seen whether future cases involving a s.68 challenge will tackle this problem.

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