High Court ruling means that challenges to arbitral awards in court remain difficult if parties have agreed to arbitrate, says expert

Out-Law News | 19 Feb 2014 | 12:30 pm | 3 min. read

A recent decision by the Technology and Construction division of the High Court has underlined how unlikely it is that a court will interfere with an award made by an arbitration tribunal.

Construction disputes expert Craig Macphee of Pinsent Masons, the law firm behind Out-Law.com, said that in the case it was particularly relevant that the arbitration tribunal considered the nature of an agreement between the parties and a change in circumstances after the agreement was made.

The Ministry of Defence had challenged the second of the arbitral tribunal’s part awards, issued over a year apart, under section 68 of the 1996 Arbitration Act which allows parties to apply to the court to overturn a tribunal's decision on specified grounds.

"The decision shows that a party contemplating challenging an arbitral tribunal's decision should continue to carefully balance its wish to overturn an award with the inherent difficulties of making an application under section 68," said Macphee,. "There is a clear line of authority that the courts will not readily interfere with an award. Moreover, a party is unlikely to succeed under section 68 if it founds upon an agreement where the effect of that agreement has already been considered by the tribunal."

"Parties should also consider their pleadings carefully to ensure that they do not confer jurisdiction on a tribunal in a particular matter which they may not ultimately wish to be determined at a later stage," he said.

Section 68 of the Arbitration Act sets out various grounds under which parties to an arbitration can apply to the courts to overturn the decision of the arbitral tribunal. These include failure by the tribunal to comply with its general duty, under section 33 of the Act; failure to conduct the proceedings in accordance with the procedure agreed by the parties; and failure to deal with all the issues put to it. As a general rule, the court will only overturn a decision on the grounds of serious irregularity that would cause one party substantial injustice.

Two part awards were issued by the arbitral tribunal. A component of the first part award rendered Turner’s alternative case  redundant. In the second part award the tribunal found that the parties had agreed that the tribunal ought to determine Turner's alternative case regardless of whether it succeeded on its primary argument, but the parties critically left the question of whether or not to actually do so in the hands of the tribunal.

At this point the tribunal decided to consider the need to determine the alternative case, because the first part award was, in effect, a change in circumstances.

The Ministry of Defence challenged this, claiming that ignoring the parties' agreement as to the procedure to be followed was a 'serious irregularity' in terms of the Arbitration Act; that the tribunal had failed to adopt procedures that avoided unnecessary delay or expense and that the tribunal had failed to deal with all of the issues that were put to it.

Mr Justice Ramsey disagreed. He said that the parties' cases at the arbitral tribunal did not seek a determination of the matter in question "come what may". He said that arbitral tribunals generally had discretion as to whether they considered a party's alternative case and that the court could not interfere with the tribunal's decision as the tribunal itself had considered the effect of the agreement between the parties.

However, Mr Justice Ramsey then went on to consider the position had the tribunal not decided on the nature and effect of the agreement. He said that it was incorrect to categorise an agreement between the parties as merely procedural if it was in fact an agreement as to what issues a tribunal ought to determine - instead, this was an agreement that defined the issues that the tribunal had jurisdiction over.

For this reason, section 68 of the Arbitration Act did not apply. Even if the agreement between the parties could be characterised as a procedural agreement, the dispute resolution procedure in the underlying contract gave the tribunal the power to decide on "all procedural and evidential matters" regardless of agreement between the parties, he said.

Construction disputes expert Craig Macphee said that the decision was a useful reminder to parties to construction contracts to ensure that dispute resolution procedures were sufficiently clear.

"The drafters of contracts – and, in particular, disputes resolution procedures - should consider including provisions that give a tribunal unfettered discretion to control matters of procedure," he said. "While not controversial in this case, there was no express wording that the tribunal's procedural decision took precedence over the parties' agreement. Rather, this was inferred from a separate provision that was said not to be subject to the agreement of the parties."