— Jack Davies
Section 68 of the Arbitration
Act (UK) enables parties to challenge an arbitral award on the basis of a “serious
irregularity affecting the tribunal, the proceedings or the award”.[1] The section sets out an exhaustive list of
irregularities on which an award may be challenged, including s 68(2)(d) —
“failure by the tribunal to deal with all the issues that were put to it” — and
s 68(2)(h) — “failure to comply with the requirements as to the form of the
award”.[2] In holding that “inadequate” or
“insufficient” reasons cannot found a legitimate challenge under either s
68(2)(d) or s 68(2)(h), the English High Court’s decision in Islamic Republic of Pakistan v Broadsheet
LLC has helpfully clarified the scope of those subsections.[3] In short, the Court has taken a narrow,
arbitration‑friendly approach to s 68, one which aligns with the purposes of s
68, the objectives of the wider Arbitration Act and international
practice. The Court also denounced prior
case law that suggested a wider approach ought to be taken to the
interpretation of s 68: this criticism was well warranted, and
should lead to clarity in the law.
Relevant facts
Broadsheet was engaged by
Pakistan to trace and locate assets taken from various state-run institutions,
and transfer them back to the government.[4] As compensation, Broadsheet was to receive 20
per cent of the “amount available to be transferred”. Approximately two years after signing its
contract with Broadsheet, Pakistan (via the National Accountability Bureau)
gave notice to rescind the contract, alleging that Broadsheet had committed
repudiatory breaches of contract.
Broadsheet denied that allegation, and commenced arbitration proceedings
against Pakistan. The tribunal awarded
Broadsheet USD 21,589,460 in damages.
Approximately USD 19m of that figure related to Broadsheet’s “loss of a
chance” claim in relation to the Sharif family.
Pakistan then challenged the
award in the English High Court under s 68, alleging a serious irregularity
that caused it substantial injustice.
The High Court’s decision
Pakistan’s primary complaint
was that the tribunal did not explain, in any material way, the method by which
it calculated the value of the Sharif family claim (i.e. the value of the
chance that Broadsheet lost to receive payment in respect of recoveries made
from Mr Sharif and his family).[5] Pakistan relied principally on another recent
High Court decision, Compton
Beauchamp Estates Ltd v Spence, to contend that a failure of reasoning may
constitute a valid challenge under s 68(2).[6]
Moulder J did not accept
Pakistan’s submissions. The Judge’s
reasoning comprised three primary points.
First, as a matter of statutory interpretation, the Judge said the
juxtaposition of ss 57 and 70(4) with s 68 means that “inadequate reasons”
cannot found a legitimate challenge against an award under s 68.[7] Section 57 entitles a party to apply to the
tribunal to correct its award, or to issue an additional award. Section 70(4) allows an English court to
require an arbitral tribunal to state the reasons for its award in further
detail, if the court considers that the tribunal’s reasons are insufficient, or
perhaps “inadequate”, such that the court is unable to properly consider the
merits of a challenge to the award under s 68.
Secondly, Moulder J did not
accept the reasoning in the Compton
decision as representing good law;[8]
instead, the Judge preferred the contrary analysis given in Margulead Ltd v Exide Technologies[9]and UMS
Holding Ltd v Great Station Properties SA.[10] Because all relevant prior case law comprised
other High Court decisions, the Judge was free to choose between the
various analyses under the English system of stare decisis.
Finally, Moulder J noted that
a major purpose of the Arbitration Act was to reduce intervention by the
English judiciary in arbitrations and arbitral awards.[11] She considered that to allow challenges
premised on “inadequate reasons” would be to expand unduly the scope of the
High Court’s supervisory function in light of the Arbitration Act’s
principles and objectives.[12]
Analysis and appraisal of the decision
Moulder J’s decision should be
applauded. The Judge’s reasoning
reflects an informed and pragmatic
approach to a section that, if interpreted erroneously, might have serious
consequences for the future of arbitration in England.
First, the Judge’s
statutory-interpretation point is correct.
If the UK Parliament had intended an inadequacy of reasons to be able to
found a challenge under s 68, and such a challenge might lead to the award
being set aside with the result that the parties have to “start from scratch”,
then why would it provide the tribunal with the ability to give further reasons
either on application of a party (s 57) or direction of the High Court (s
70(4))? From reading the judgment, it
appears, crucially, that Pakistan was never able to answer that question. Inadequacy of reasons is not listed as one of
the nine enumerated grounds in s 68(2).
The specificity of those available grounds means it is clear that the UK
Parliament gave them substantial thought.
A traditional canon of English statutory interpretation is expressio
unius est exclusio alterius.[13] Where a statutory proposition might have
covered many factors but only mentions some, unless those mentioned are listed
merely by way of example, the rest are taken to be excluded from the
proposition.[14] Although not discussed by Moulder J, that
canon applies with full force to s 68(2) and reinforces her reasoning.
Secondly, the Judge was
correct to reject the analysis of Morgan J in Compton. In that case, Morgan J stressed the
importance of reasons in an arbitral award: “an arbitrator should explain why
he has decided the essential issues in the way in which he has”.[15] He reasoned, therefore, that “[a]n award
which did not contain such reasoning would not comply with [the duty of an
arbitrator to give reasons under s 52(4)][16]
and that would give rise to an irregularity within s 68(2) of the 1996 Act”.[17] No judge, in any of the relevant cases, has
argued that an arbitral tribunal does not have a duty to give reasons for its
award under s 52. And no judge has
doubted the importance of such reasons.
It is only natural and correct that parties are entitled to know the
grounds upon which the tribunal has come to its conclusions, unless they waive
that right.[18] But that point still does not answer the
question that Moulder J asked above: if a deficiency of reasons can be cured by
a further award or clarification under either s 57 or s 70(4), then why should
an award be liable to be set aside under s 68?
That remains the most crucial point of interpretation when evaluating
the correctness of the decision in Islamic Republic. Setting aside an award is simply too drastic
a course of action to have available to litigants, when the relevant
deficiencies can be cured with no prejudice to the complaining party.
Lastly, Moulder J’s reliance
on the Arbitration Act’s objective of reducing judicial intervention in
arbitration deserves both elaboration and applause. The Judge made that point briefly, and did
not cite any of the Act’s legislative history.
However, when that history is examined, it becomes clear that this is
perhaps the strongest point in favor of disallowing an inadequacy of reasons to
found a valid challenge under s 68.
Aside from the Bill itself, the most important piece of les travaux
préparatoires to the Arbitration Act is the Departmental Advisory
Committee’s 1996 report on the Arbitration Bill, where all provisions of the
Bill were discussed in detail by the drafters, including the clause which was
to be enacted as s 68.[19] The drafters said that s 68 was intended only
to be applied “by way of support for the arbitral process, not by way of
interference with that process”.[20] Furthermore, that s 68 was “really designed
as a long stop, 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”.[21] In the light of these statements, it is very
hard to see how the UK Parliament envisaged judges to be entitled to cast
critical eyes over the reasoning in arbitral awards with an eye to invalidating
them, particularly when further reasons are able to be requested or
mandated under other provisions of the Arbitration Act. The Act’s legislative history, then, adds
further weight to Moulder J’s conclusions.
An international comparison also
highlights the propriety of the decision in Islamic Republic. In enacting s 68, the UK Parliament
deliberately provided for a variety of procedural challenges to awards that are
not be able to be made under standard international practice.[22] For example, under s 68, an award may be
challenged on the grounds that the arbitral tribunal failed “to comply with the
requirements as to the form of the award”.[23] In contrast, art 34 of the UNCITRAL Model Law
on International Commercial Arbitration contains comparatively few provisions
upon which a party may apply to set aside an arbitral award rendered in an
international arbitration.[24] Those provisions parallel art 36 of the Model
Law, which sets out the grounds on which a court may refuse to recognize or
enforce an arbitral award. Those
grounds, in turn, parallel the grounds listed under art V of the New York
Convention.[25] In short, art V only allows for setting aside
on grounds of incapacity, lack of jurisdiction, or major violations of due
process.
In contrast, the longer list
of procedural irregularities which may found a challenge under s 68 reflects
the old English judicial tradition of heightened interference in arbitration.[26] It must therefore be recognized that, if the
approach taken by Morgan J in Compton was to stand — the same approach
urged upon Moulder J by Pakistan in Islamic Republic — English judicial
supervision of arbitration could substantially increase. England already allows for heightened
scrutiny of awards in contrast to international practice on this point and,
should supervision from the bench extend to assessing the “adequacy” or
“sufficiency” of a tribunal’s reasoning, parties might seriously think twice
before choosing to seat their arbitrations in London. After all, one of the key selling points of arbitration
is a streamlined adjudicatory process.
Even acknowledging that international arbitration is far more complex
and time-consuming than it was 50 years ago, it remains that a lack of a right
of appeal on the merits can be a drawcard in attracting parties to arbitration.[27] Allowing parties to challenge the adequacy of
a tribunal’s reasons would undermine this.
Key
takeaways and conclusions
Moulder J’s decision in Islamic
Republic is an excellent one. She
has taken an arbitration-friendly approach to s 68 of the Arbitration Act
and has ruled that English judges cannot invalidate an arbitral award for want of
reasons on the tribunal’s part. Instead,
they have the power to request additional reasons, or an additional award, from
the tribunal to address any perceived deficiencies in this regard. Parties can have confidence that their
arbitral awards will not be scrutinized in painful detail, as judges pore over
every aspect of the tribunal’s thinking.
Moulder J’s decision supports the intention of the drafters of the
Arbitration Act that s 68 really only function as a “long stop … in extreme
cases”.
The fact remains, however,
that Moulder J’s decision is only another High Court judgment to add to the
list that was cited to her by the parties in Islamic Republic. Putting its compelling reasoning to one side,
the judgment technically has no more authority than the contrary decision in Compton,
given the English tradition of stare decisis. Furthermore, it has not yet been cited or
endorsed by any other cases. Until
appellate guidance is given, or Parliament amends the wording of the
Arbitration Act to clarify matters, the issue remains unresolved. That said, I consider that practically
speaking, Moulder J’s analysis is persuasive and future High Court judges are
likely to apply it.
Jack
Davies is an LL.M. Candidate in the International Business Regulation,
Litigation and Arbitration Program at NYU School of Law. Prior to enrolling at NYU, Jack clerked for
the current Chief Justice of New Zealand, Dame Helen Winkelmann, and then
practiced commercial litigation in Auckland.
[1] Arbitration Act 1996 (UK), s
68(1).
[2] For any of the enumerated
irregularities to lead to a successful challenge, the irregularity must have
caused, or will cause, “substantial injustice” to the applicant: s 68(1). Note also, in relation to s 68(2)(h), that
pursuant to s 52(4) — a section titled “Form of award” — the award must
“contain the reasons for the award unless … the parties have agreed to dispense
with reasons”.
[3] Islamic
Republic of Pakistan v Broadsheet LLC [2019] EWHC 1832 (Comm), [2019]
WLR(D) 402.
[4] A broader summary of the background
facts is given at [5]–[11] of the Court’s decision.
[5] See at [18(iii)].
[6] Compton
Beauchamp Estates Ltd v Spence [2013] EWHC 1101 (Ch).
[7] Islamic
Republic of Pakistan v Broadsheet LLC, supra n 4, at [42].
[8] Ibid.
[9] Margulead
Ltd v Exide Technologies [2004] EWHC 1019 (Comm), [2005] 1 Lloyd’s Rep 324.
[10] UMS
Holding Ltd v Great Station Properties SA [2017] EWHC 2398 (Comm), [2018]
Bus LR 650.
[11] Islamic
Republic of Pakistan v Broadsheet LLC, supra n 4, at [42].
[12] Ibid.
[13] FAR Bennion Understanding Common Law
Legislation: Drafting and Interpretation (OUP, 2001, Oxford) at 88.
[14] Ibid.
[15] Compton Beauchamp Estates Ltd v Spence, above n 7, at [51]. Morgan J
cited an older decision, Benaim (UK) Ltd v
Davies Middleton (2005) 102 Cons LR 1 (QB), where the Court said in
reference to s 68 at [95]: “It is strongly arguable that unless a party
knows the reasons for an award there is automatically substantial injustice to
him”.
[16] See
footnote 3, supra.
[17] Compton Beauchamp Estates Ltd v Spence, above n 7, at [51].
[18] See Arbitration Act 1996 (UK), s 52(4).
[19] Departmental
Advisory Committee on Arbitration Law “1996 Report on the Arbitration Bill”
(1997) 13 Arbitration International 276.
See also Andrew Tweeddale and Keren Tweeddale Arbitration of
Commercial Disputes: International and English Law and Practice (OUP,
Oxford, 2005) at 765.
[20] At
[280].
[21] Ibid.
[22] Jean-François
Poudret and Sébastien Besson Comparative Law of International Arbitration
(2nd ed, 2007, Sweet & Maxwell, London) at 721.
[23] Section
68(2)(h).
[24] United
Nations Commission on International Trade Law UNCITRAL Model Law on
International Commercial
Arbitration (1985,
with amendments as adopted in 2006) accessible at: <https://www.uncitral.org/pdf/english/texts/arbitration/ml-arb/07-86998_Ebook.pdf>.
[25] Convention
on the Recognition and Enforcement of Foreign Arbitral Awards (“New York
Convention”) (opened for signature 10 June 1958, entered into force 7 June
1959).
[26] Poudret
and Besson, supra n 23, at 721.
[27] Frank-Bernd
Weigand and Antje Baumann “Introduction” in Frank-Bernd Weigand (ed) Practitioner’s
Handbook on International Commercial Arbitration (2nd ed, OUP, 2009,
Oxford) 1 at 28.
