Arbitrator – Decision – Serious irregularity – Parties entering into consortium agreement – Dispute arising in respect of losses on project – Arbitral tribunal making final award by majority – Claimant challenging award alleging unfairness causing substantial injustice – Whether tribunal erring in law – Application granted
The claimant and the defendant were parties to a consortium agreement to provide a flue gas desulphurisation plant at a UK site. The defendant was responsible for the process, design and supply of equipment and the claimant was to carry out the detailed design, procurement, construction and commissioning.
There were problems with the plant that, inter alia, led to two separate agreements with the ultimate customer. The first agreement led to a reduction in the contract price of £2.153m to reflect what became known as the three-pump solution. The second agreement, negotiated at the conclusion of the works, obliged the customer to pay the consortium £7m in full and final settlement of all claims and cross-claims. The sum of £5m was paid to the claimant, and £2m was paid to the defendant. Each party stated that, owing to their losses on the project, they were still significantly out of pocket.
The claimant commenced ICC arbitration proceedings against the defendant, claiming that the latter’s default in respect of the design was to blame for the three-pump solution and the loss caused thereby and made a separate claim in respect of losses resulting from the final settlement with the customer. The final award, by the tribunal’s majority, was to the effect that the sums due to the claimant from the defendant were £1,856,597.90; the sums due to the defendant from the claimant were £1,101,871, allowing a credit of £973,344 in the defendant’s favour. The claimant was therefore entitled to a net sum of £754,726.93. In addition, the claimant recovered 40% of its costs because of the shortfall between the sums claimed and recovered. The claimant sought to remit the award to the tribunal under section 68 of the Arbitration Act 1996, largely based upon the opinion of the dissenting member. The underlying complaint was one of unfairness within section 68(2)(a) that had caused substantial injustice.
In essence, the difference expressed by the tribunal’s members was that the majority found that the claimant had admitted that £973,344 was due to the defendant in any event, regardless of anything else or any other finding, and therefore regardless of the outcome of the defendant’s claim in respect of design. The dissenting arbitrator said that there was no basis for such a finding and that the alleged unqualified admission was not a point that had been advanced at any time by either party.
Held: The application was granted.
The existence of a dissenting opinion on a point of law or fact, arising in respect of an issue that had been pleaded or dealt with by the parties in argument, was irrelevant to an application under section 68. The decision of the arbitral tribunal on such a point, albeit by a majority rather than unanimously, could not be challenged for serious irregularity in such circumstances.
A comment or observation in a dissenting opinion, to the effect that an important point had been decided by the majority without reference to the parties, would be a factor to which the court would attach weight in dealing with an application under section 68. Depending upon the circumstances, such an observation might have considerable weight, although it was unlikely that it could, on its own, prove determinative.
In circumstances where the majority had plainly been considered and rejected an argument raised by the dissenting arbitrator, even if it was an argument that the parties did not raise themselves, it might be difficult to say, even if a serious irregularity arose, that a substantial injustice had been caused. Regardless of how it arose, the argument would have been considered and rejected by the majority: Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14; (1985) 275 EG 1134, Weldon Plant Ltd v Commission for the New Towns [2001] 1 All ER (Comm) 264, World Trade Corporation Ltd v C Czarnikow Sugar Ltd [2004] EWHC 2332 (Comm), Vee Networks Ltd v Econet Wireless International Ltd [2004] EWHC 2909 (Comm); [2004] 1 All ER (Comm) 303 and London Underground Ltd v Citylink Telecommunications Ltd [2007] EWHC 1749 (TCC); [2007] 2 All ER (Comm) 694 applied, Van der Giessen-de Noord Shipbuilding Division BV v Imtech Marine & Offshore BV [2008] EWHC 2904 (Comm); [2009] 1 Lloyd’s Rep 273 considered.
Having regard to the dismissal of the defendant’s claim in respect of design deficiencies and the delays caused thereby, and the other findings in the final award, each of the ways in which the defendant had claimed to be entitled to be paid £973,344 by the claimant failed. There was therefore no pleaded basis on which the tribunal could find that the claimant was liable to pay that sum to the defendant, or on which it could order that that sum should be deducted from the moneys that it found otherwise to be due to the claimant. The majority had made a mistake, which arose because the tribunal had not raised that entirely new analysis with the parties and had not asked for submissions on the novel line of reasoning.
It was therefore necessary for the issue of the deduction only, namely the £973,344, to be remitted to the tribunal so that the issue of whether any such deduction should be made in the light of the other findings of the tribunal could be resolved and, if necessary, the figures adjusted accordingly. A risk of substantial injustice arose if the issue of the deduction was not reconsidered.
Paul Buckingham (instructed by Shadbolt LLP, of Reigate) appeared for the claimant; Peter Leaver QC (instructed by Herbert Smith LLP) appeared for the defendant.
Eileen O’Grady, barrister