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Commercial Court overturns arbitral award, but demonstrates "high hurdles" needed for intervention, says expert

Out-Law News | 23 May 2014 | 4:54 pm | 2 min. read

A "very rare" example of a successful challenge to an arbitral award under section 68 of the Arbitration Act in fact demonstrates the UK courts' "arbitration-friendly approach", an expert has said.

John Gilbert of Pinsent Masons, the law firm behind Out-Law.com, was commenting as the Commercial Court upheld the challenge on the grounds of a breach by the arbitral tribunal's general duty of fairness, as set out in section 33 of the Arbitration Act. Section 68 of the Act allows a party to challenge an award in cases of "serious irregularity", including breaches of the section 33 general duty.

"Despite finding that the tribunal had failed to act in compliance with section 33(1)(a) of the Act, the court reiterated that its starting point is to be non-interventionist and stressed the high hurdle that would need to be cleared to succeed in a challenge under section 88," Gilbert said.

"In particular, Mr Justice Field's remittance of the award back to the tribunal on the basis of his view that, despite the breach of section 33, there was no objective reason to conclude that confidence in the tribunal's ability to reach a fair and balanced conclusion should be lost, shows that even where the court does intervene it will do so as lightly as possible," he said.

Brockton Capital, a fund manager, had entered into an agreement with Atlantic-Pacific Capital (APC) over the raising of capital for one of its funds. Under the agreement, Brockton was to pay a placement fee to APC is a certain level of placement was achieved. The parties also entered into a second agreement with an investor. Both of these agreements were governed by New York law and provided for arbitration in London under the International Chamber of Commerce (ICC) Rules.

When a dispute arose under the agreements, Brockton tried to terminate them and APC began ICC arbitration proceedings. At the end of the hearing, the tribunal issued an order setting a date for the serving of post-hearing submissions. In these submissions, APC argued that a clause in the investor agreement amounted to an unenforceable penalty; an argument that Brockton acknowledged in its own submissions but was not given a chance to properly object to. When making its award, the tribunal held that this clause was in fact an unenforceable penalty.

In his Commercial Court judgment, Mr Justice Field ruled that Brockton had been given two separate opportunities to respond to APC's new arguments but had not taken them. However, he upheld the fund manager's alternative argument that APC's penalty clause case was directed solely to the enforceability of paragraph 2(g)(i) of the agreement, not the paragraph as a whole which contained a second sub-section dealing with termination. For this reason, he remitted the award back to the same tribunal rather than overturning it entirely.

The judge said that the threshold of the test under section 68 was "set deliberately high" because "the purpose of the Act was to reduce drastically the extent of intervention by the courts in the arbitral process". "Thus relief ... will only be appropriate where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected," he said.

He said that he had "no hesitation" in rejecting a request from Broxton to overturn the award entirely on the grounds that "a reasonable person would cease to have confidence in the tribunal's ability to reach a fair and balanced conclusion on the issues".

"The members of the tribunal are distinguished lawyers and arbitrators of high reputation and albeit that I have found that they acted in breach of section 33, I can see no grounds supporting an objective conclusion that confidence cannot be placed in the tribunal's ability to reach a fair and balanced conclusion on the outstanding issues in the reference following this judgment," he said. "Accordingly, I shall order remission to the existing tribunal."

"For practitioners, the case emphasises the need for care when introducing new arguments into post-hearing briefs and when responding to such points if they are raised by your opponent," said arbitration expert John Gilbert of Pinsent Masons.