Setting aside arbitration awards

In K v P [2019] EWHC 589 the High Court in the UK remitted a decision to the original arbitral tribunal for reconsideration on the basis that the original award contained a "serious irregularity" in terms of s 68 of the UK Arbitration Act 1996, and in Pukeroa Properties (No 2) Ltd v Rotorua Hunting & Fishing New Zealand Ltd [2019] NZHC 1367 the High Court declined to set aside an award under article 34 of Schedule 1 to the NZ Arbitration Act 1996, but granted leave to appeal.

Both cases illustrate how the courts approach set aside applications, albeit under different Acts and on opposite sides of the World.

The facts of K v P turn on a dispute over a master share price agreement, under which the purchase price for shares was subject to adjustment after settlement for the number of qualifying leases held by the subject agricultural company in the Ukraine, and the true state of its indebtedness.  A disagreement over the price adjustment was referred to arbitration under the London Court of International Arbitration (LCIA) Rules.  Pleadings and witness statements were exchanged and the hearing concluded in late 2015.  Submissions were exchanged, including on costs, in February 2016.  The award was not issued until February 2018 - an unacceptable delay, in the opinion of the court.

Three grounds were raised to challenge the award - (1) delay (s 69(2)(a); (2) failure to comply with the agreed procedure (s 68(2)(c)); and (3) failure to deal with the issues put to it (s 68(2)(d)).  In considering the case, the court noted that: 

"The court will only interfere in an extreme case where its conduct is so far removed from what could reasonably be expected from the arbitral process, that justice calls for it to be corrected.  Section 68 is designed to deal with procedural unfairness and not with mistakes of whether law or fact.  The tendency to dress up, in section 68 garb, complaints which are in reality criticisms of the findings or holdings of the arbitrators is to be denigrated.  Moreover, a reasonably generous margin of appreciation is granted to arbitrators in the discharge of their functions and the question of substantial injustice is determined by asking whether the tribunal was caused by adopting inappropriate means to reach one conclusion whereas, has they adopted appropriate means, they might well have reached another conclusion favourable to the applicant."

In applying that test to the arbitral proceedings, the court found that even though the award did not deal expressly with issues raised by one party, that party had been given the opportunity to address the issue and it was properly dealt with by the tribunal, even though the award did not address every argument put to it.  However, the court found that the tribunal did fail to properly consider a number of issues put to it and that they would have materially affected the outcome.  This was held to be a serious irregularity which warranted remitting the issue to the tribunal for reconsideration.  

The subtext to this case was the illness of a member of the tribunal delaying dealing with the dispute, the passage of time making proper consideration of the issues difficult (including the opportunity to seek further submissions) and a belief that the tribunal rushed the award.

Conversely, in the Hunting & Fishing case, the High Court declined to set aside the award under article 34, but granted leave to appeal on a singular question of law, which it considered met the criteria for leave to appeal outlined in Gold & Resources.

The ground pleaded for setting aside was public policy, under article 34(2)(a)(ii).  This argument failed for the relatively simple reason that the arbitrator determined the question put to him - the interpretation of a clause of the lease.  Public policy, Justice Duffy concluded, quoting the Amaltal decision, did not apply; that was a far more serious issue requiring some element of illegality or that enforcement of the award would be injurious to public good or would be offensive to the ordinary, reasonable and fully informed member of the public.

However, on the finding by the arbitrator that the reference in the agreement to lease to "the premises" included not just the physical premises but also the business of Hunting & Fishing (a question of law), Duffy J held that the criteria for leave to appeal in Gold & Resources had been met.

Both judgments contain careful and thorough considerations of the grounds for setting aside, notwithstanding that they reach different conclusions.  Duffy J's application of the criteria in Gold & Resources in the Hunting & Fishing case is also worth consideration.  While there is a significant number of applications to the High Court for leave to appeal under clause 5 of Schedule 2 to the Arbitration Act 1996, the success rate on appeal (and setting aside) is justifiably low.

It will be interesting to see what the outcome of the Hunting & Fishing appeal will be.