T v V & W

This is an anonymised version of the judgment which I delivered at the conclusion of the hearing on 16 May 2018. The reason for anonymity is that I shall need to refer to an earlier judgment in this case by Popplewell J which includes reference to confidential details concerning the claimant’s medical condition (see [2017] EWHC 565 (Comm)). I shall adopt the same initials to refer to those involved as in that judgment.

The application before me concerns a challenge to an arbitration award under section 68 of the Arbitration Act 1996. It arises out of a partnership dispute between the claimant, T, and his two former partners, V and W, who are accountants. The partnership agreement between them contained an arbitration clause and, when a dispute arose relating to the circumstances in which the partnership came to an end, an arbitrator was appointed. The arbitrator initially appointed did not continue with the reference and A, who is a Fellow of the Institute of Chartered Accountants and a Chartered Arbitrator, was appointed instead.

The arbitration clause in the partnership agreement did not specify the application of the LCIA arbitration rules, but at a procedural hearing it was agreed that the arbitration, although remaining an ad hoc arbitration, would be conducted in accordance with Articles 4 and 13 to 32 of the LCIA Rules 2014. Those rules include Article 19, which reads as follows:

“(1)

Any party has the right to a hearing before the Arbitral Tribunal on the parties’ dispute at any appropriate stage of the arbitration (as decided by the Arbitral Tribunal), unless the parties have agreed in writing upon a documents-only arbitration. For this purpose, a hearing may consist of several part-hearings (as decided by the Arbitral Tribunal).

(2)

The Arbitral Tribunal shall organise the conduct of any hearing in advance, in consultation with the parties. The Arbitral Tribunal shall have the fullest authority under the Arbitration Agreement to establish the conduct of a hearing, including its date, form, content, procedure, time-limits and geographical place. As to form, a hearing may take place by video or telephone conference or in person (or a combination of all three). As to content, the Arbitral Tribunal may require the parties to address a list of specific questions or issues arising from the parties’ dispute.

(3)

The Arbitral Tribunal shall give to the parties reasonable notice in writing of any hearing.

(4)

All hearings shall be held in private, unless the parties agree otherwise in writing.”

In due course the arbitration resulted in an award dated 5 January 2018 in which T was largely unsuccessful. The arbitrator found in favour of V and W, awarding a total of £955,058 in their favour, together with an order for payment of the costs of the arbitration and interest. T’s counterclaim was dismissed. That led to an application by T pursuant to section 68 of the Arbitration Act 1996 to set aside the award and to order the arbitrator to allow him a hearing under Article 19 of the LCIA Rules.

The claim form did not provide details of the serious irregularity which was alleged to have taken place, other than referring to some of the provisions of section 68 of the 1996 Act. The grounds to the application are set out in more detail in T’s witness statement filed in support of the claim. As Andrew Baker J recently explained in Orascom TMT Investments Sarl v Veon Ltd [2018] EWHC 985 (Comm) at [2] to [5], that is not an acceptable way in which to initiate proceedings under section 68. The claim form needs to make clear exactly what is said to constitute the irregularity, not only by identifying the provisions of section 68(2) which are relied upon, but also the respects in which there is said to have been a failure to conform with the requirements of that subsection. It needs also to make clear the nature of the substantial injustice which the claimant claims to have has suffered.

I fully endorse what Andrew Baker J said in that regard. In fairness to T, however, he was proceeding as a litigant in person, perhaps not familiar with the requirements of the court’s procedure, and he was not alone in taking the course which he took. For the future those bringing these applications will be expected to comply with what Andrew Baker J has indicated must be done.

The witness statement which sets out the grounds of the application falls into two parts. The first complains about the failure of the arbitrator to allow an oral hearing. The second is a detailed and point-by-point refutation of the arbitrator’s findings. It has been made clear on many occasions that section 68 is not an opportunity to re-fight the battles which have been fought over in the arbitration. It is a limited power of review for the court in which it is necessary to show, first, that there has been an irregularity of the kind specified in section 68(2) and, second, that it has caused or will cause substantial injustice to the applicant.

The first of T’s two complaints is potentially a legitimate complaint under section 68, but the point-by-point taking issue with the findings and conclusions of the arbitrator in the award is outside the scope of section 68. Parties who choose arbitration agree to accept the findings and conclusions of their chosen tribunal. In this case they entrusted the President of the Institute of Chartered Accountants with the choice of a suitable arbitrator in whom they would repose confidence. If an arbitrator gets the facts wrong, that is not a ground on which the court will intervene. Likewise if an arbitrator gets the law wrong, at any rate in a case where the parties have agreed to exclude an appeal under section 69. I am not saying that either of these things has happened in this case. The award appears to be clear, comprehensive, carefully considered, and well reasoned. But whether it is right or wrong is not a matter which the court will investigate. The only investigation is whether there has been a serious irregularity within the terms of section 68. That is abundantly clear from the 1996 Act, founded as it is on the principles of party autonomy and minimal intervention by the court in the process of arbitration.

Accordingly I shall say no more about the numerous detailed points made by T which he submits amount to errors of fact or law by the arbitrator.

The issue of the claim form challenging the award led the arbitrator to make an application that the claim should be dismissed on paper. There is a procedure set out in paragraph O8.5 of the Commercial Court Guide for applications to be dismissed on paper if they are unmeritorious in order to avoid delays which may occur if cases have to go to a hearing, and to promote speedy finality, which is one of the objects of the 1996 Act. It is, however, somewhat unusual (indeed, in my own experience unique) for such an application to be made by the arbitrator. The usual course – and, in my judgment, much the wiser course – is for an arbitrator to refrain from intervention in section 68 proceedings unless he or she has something specific to contribute. Usually the successful party in the arbitration has a strong interest in defending the award and is more than capable of doing so. The danger if an arbitrator becomes involved is that, if the application succeeds and the award has to be remitted to the arbitrator for reconsideration in accordance with the court’s order, there is at least a risk that the independence and impartiality of the arbitrator may be viewed as having been compromised.

The position is different of course if there is a specific attack on the conduct or integrity of the arbitrator, with which in fairness the arbitrator ought to have an opportunity to deal, or if there is an application for payment by the arbitrator of the costs of the application, although that would be unusual. However, that is not the present case. Indeed T readily confirmed in the hearing before me, as no doubt he would have done earlier if he had been asked, that he was not seeking an order for costs from the arbitrator.

The arbitrator’s application came before Phillips J, who was not prepared to dismiss the case on paper. He stated as follows:

“(1)

It is sufficiently arguable that the third defendant (the Arbitrator) despite purporting to proceed to an award pursuant to Section 41(7)(c) of the 1996 Act did not do so but instead continued the substantive conduct of the arbitration by asking for further and final written submissions.

(2)

It is further arguable that in so doing the Arbitrator should have had regard to Article 19.1 of the LCIA Rules which gave the parties a right to an oral hearing.

(3)

Although the claimant has not specifically identified the substantial injustice he says resulted, it is implicit in his application and argument that he contends that, had he had the opportunity to address the Arbitrator at a hearing, he might have persuaded her not to make the findings of which he complains.”

That led to the present application in which the defendants, V and W, seek the dismissal or striking out of the section 68 application, or, alternatively, security for the sum awarded or security for costs as a pre-condition of the claim proceeding, and the arbitrator renews the application for the claim to be dismissed. In the event, however, once it was confirmed that no order for costs was being sought against her, Mr David Brynmor Thomas for the arbitrator was content to leave Mr Stephen Hackett for V and W to make the running and made no further submissions of his own.

In order to explain how this matter arises, I need to go back to the judgment of Popplewell J in this case given on 7 February 2017, [2017] EWHC 565 (Comm). That sets out in some detail the way in which the dispute arose, and its somewhat convoluted procedural history up to that time. It was a judgment on an application by T to remove the arbitrator pursuant to section 24 of the Arbitration Act 1996 on the grounds of justifiable doubts as to her impartiality and her refusal or failure properly to conduct the proceedings.

Popplewell J set out the circumstances in which that application was made. It arose out of a peremptory order made by the arbitrator in which she had ordered T to provide the documents on which he intended to rely by 5 pm on Friday 5 August 2016, ruling that failure to comply would mean that he would not be entitled to rely on those documents. That order was not complied with by T or by the solicitors acting for him. It was maintained by the arbitrator and this led to the application before Popplewell J to remove her. Popplewell J rejected the application comprehensively, concluding at [125] that the arbitrator “explained the basis on which she was reaching her decisions and her decision in particular of imposing and maintaining the peremptory order was one which she could properly have reached”. Popplewell J ordered T to pay the costs of the application, which costs have not been paid, despite some attempts by V and W to enforce the order.

The arbitration then resumed. As a result of the non-payment of the costs ordered by Popplewell J and other matters which were put before the arbitrator, she made a further order that T secure the amount in dispute. That was an order which she had power to make under Article 25 of the LCIA Rules which give the arbitral tribunal power to order such security on an interim basis. That order too was not complied with and became a peremptory order.

At this point I should take up the story in more detail because it is that peremptory order which was referred to by Phillips J when he dealt with this case on paper and identified a possible issue on which T might have grounds to complain. I should make clear, however, that Phillips J was saying no more than that it was not appropriate to dismiss the case on paper without an oral hearing. Such an oral hearing has now taken place before me.

On 20 June 2017 the arbitrator, having had her attention drawn to the provisions of section 41 of the Arbitration Act, noted that T had not complied with her order for the provision of security dated 18 May 2017 and her subsequent peremptory order. She drew T’s attention to section 41 of the Arbitration Act 1996. This provides under section 41(7) that:

“If a party fails to comply with any other kind of peremptory order [i.e. any kind other than the kinds of order specifically dealt with in earlier subsections], then, without prejudice to section 42 (enforcement by court of tribunal’s peremptory orders), the tribunal may do any of the following:

a)

direct that the party in default shall not be entitled to rely upon any allegation or material which was the subject matter of the order;

b)

draw such adverse inferences from the act of non-compliance as the circumstances justify;

c)

proceed to an award on the basis of such materials as have been properly provided to it;

d)

make such order as it thinks fit as to the payment of costs of the arbitration incurred in consequence of the non-compliance.”

The arbitrator continued that unless T complied with her order by 4 pm on Thursday 22 June 2017, she would proceed to make an award on the material available.

On 22 June 2017 T responded saying that it would be a gross understatement to say that he was dismayed by the arbitrator’s order and reiterated arguments as to why that order should not stand. He said that he hoped that the arbitrator would accept that he had done his best to comply with the order.

On 2 July the arbitrator, having reviewed the documents and representations made by the parties, explained why she took the view that T could have provided, but had failed to provide, the security which he had been ordered to provide. She continued:

“I am now proposing to proceed under section 41(7) of the Arbitration Act sub-section (c). Under section 41(7)(c) I may proceed to an award on the basis of such materials as have been properly provided to me. I propose therefore that each party may give further written submissions and I will then conduct the arbitration on a documents only basis. Where any matters in the material are unclear to me, I would propose to apply section 22.1 of the LCIA Rules ‘Additional Powers’. Under section 22.1 of the LCIA Rules I may upon my own initiative after giving the parties a reasonable opportunity to state their views, decide to … (3) conduct such enquiries as may appear to the Arbitral Tribunal to be necessary or expedient and (5), order any party to make any documents under its control available for inspection. May I have any representations you may have on this proposal/timescale for written submissions by 4.00pm Thursday 6 July 2017.”

It was clear in my judgment that the arbitrator was continuing to proceed under section 41 on the basis that there was a failure to comply with the peremptory order, although she was also reserving the right, if necessary, to seek clarification from the parties if there were points on which such clarification was necessary. Her references to a “proposal” did not mean that the question whether to proceed to an award on the material available was to be the subject of further representations. It referred only to the possibility of a request for such written clarification as she might choose to seek and to the timing of any responses to such a request. Her intentions were further made clear in an exchange of e-mails on 2 July 2017 when T asked for guidance as to what it was that the arbitrator required from him, and she responded by setting out the terms of Article 22 of the LCIA Rules and providing a link to the LCIA website.

T responded on 6 July 2017 reiterating his case that he had done his best to comply with the order for security and stating: “Given the above circumstances I feel I have done all that is humanly and legally possible to comply with your order and that accordingly section 41(7) of the Arbitration Act 1996 should not be applied by you”. He reiterated an earlier request he had made that there should be a hearing at which both parties would submit evidence and be examined and cross-examined.

The arbitrator replied on 11 July 2017 reassuring T that she was “conscious of my responsibilities to act fairly and impartially between the parties”, and explaining:

“Section 41(7) does not give me the power to make an award against a defaulting party dismissing his claim, and [T’s] defence/representations will be carefully considered. Section 41(7)(c) empowers me to continue the arbitration on the basis of the documents before me. However, I have explained in my e-mail of 2 July 2017, where anything is unclear I will give the parties additional opportunities to state their views after the ‘final’ written submissions”.

She continued, therefore, to make clear that it was the section 41 regime which would apply. She explained correctly that it did not give her the power to make in effect a default award against the party in breach of the peremptory order but that the material advanced by the parties would be carefully considered and an award on the merits would be produced. However, no further material would be permitted, save for the reservation of a right to seek clarification on anything which the arbitrator regarded as unclear.

T responded on 18 July 2017 expressing disappointment that the arbitrator had chosen (as he claimed) not to respond to his request for a hearing under Article 19 and asking whether that was an oversight or a refusal. In my judgment, that was not an accurate characterisation of what the arbitrator had said. She had made it clear that the section 41 regime was going to be applied and thus that there would be no hearing. The arbitrator replied, however, on 25 July 2017 saying:

“I have not ruled out a hearing. I draw your attention to clauses 19.2 and 19.3 of the LCIA Rules 2014”.

That was, perhaps, slightly surprising in view of what had gone before, but is best understood in my judgment as an indication that the arbitrator kept open the possibility that a hearing might prove to be the most convenient way for any clarification which she might find it necessary to seek to be provided.

T responded, stating again that a hearing would be necessary. Nevertheless, on 31 July he submitted the extensive final written submissions which the arbitrator had permitted, saying:

“I am certain that there will be the need for further clarification and perhaps more detailed submissions and a hearing as I have requested”.

Leaving aside some further correspondence which is not relevant to the present application, I can move on to an e-mail on 3 January 2018 in which Griffin Law, acting for V and W, asked the arbitrator whether she had a date when she expected to issue the award. She responded on 5 January that the award was ready and would be released on payment of her invoice. V and W paid their share of the arbitrator’s invoice. T did not pay his share but, nevertheless, five days later the arbitrator issued the award finding, as I have said, almost but not quite entirely, in favour of V and W.

If it had not been for the peremptory order, it would appear that the effect of Article 19 of the LCIA Rules is that a party has a right to a hearing. It is for the arbitral tribunal to decide what is the appropriate stage of the arbitration for such a hearing to take place, but it could hardly be a proper decision to say that the answer to that question would be “never”. That is not to say, I emphasise, that a party has an unlimited right to take time at a hearing making submissions or cross-examining witnesses. The requirement is that stated in section 33 of the 1996 Act, that there should be a procedure which gives each party a reasonable opportunity to put its case and is suitable for the dispute in question.

Nevertheless, although the form which any hearing should take is a matter for the arbitrator under the LCIA Rules, it does appear that, where parties agree that those rules should apply, as in this case, a party does have a right to a hearing. However, that is subject to the provisions of section 41 of the Arbitration Act dealing with peremptory orders. The section begins by saying:

“(1)

The parties are free to agree on the powers of the tribunal in case of a party’s failure to do something necessary for the proper and expeditious conduct of the arbitration”.

Subsection (2) provides:

“(2)

Unless otherwise agreed by the parties, the following provisions apply”.

It is therefore possible to contract out of the provisions relating to peremptory orders set out in the later subsections of section 41. However, it has not been suggested, nor so far as I can see could it be suggested, that parties who agree to the LCIA Rules in cases where the seat of the arbitration is in England have contracted out of those provisions. Section 41 merely gives the tribunal additional powers, that is to say powers which are in addition to those provided in the Rules.

Accordingly, the arbitrator was entitled in appropriate circumstances to make a peremptory order, as indeed Popplewell J has already held in the order relating to the provision of documents, and she was entitled to proceed in accordance with subsection (7)(c) in the event of failure to comply with such a peremptory order. It has not been suggested that the peremptory order which the arbitrator made for provision of security was an order which she was not entitled to make. Accordingly it was the peremptory order regime under section 41(7)(c) which the arbitrator made clear to the parties would be followed in this case.

I accept in principle that it would be possible for an arbitrator who had indicated that the peremptory order regime in section 41(7)(c) was to be followed to change her mind about that and to resume conduct of the arbitration in accordance with whatever procedural regime would apply in the absence of any failure to comply with a peremptory order. However, review of the correspondence which I have set out as a whole makes it clear in my judgment that this is not what happened in this case. The arbitrator continued to conduct the proceedings under the section 41(7)(c) regime throughout. The fact that she reserved the right to seek further clarification from the parties does not in my judgment detract from that. Nor does the fact that she referred at one stage to the fact that she had not ruled out the possibility of a hearing. On the contrary, that was all part of what the arbitrator was saying about the possibility of seeking further clarification of the parties’ submissions if necessary.

Accordingly, although I would accept that it is at least arguable in a case where there was no peremptory order, and which was subject to Article 19 of the LCIA Rules, that a failure to afford a party a hearing at all would be an irregularity falling within section 68(2)(c) (“failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties”) that is not the position in this case. Nor is it arguable in my judgment that there was a failure by the arbitrator to comply with the section 33 general duties, or a failure to deal properly or at all with the issues put before her. I take that language from the arbitration claim form and understand that to be a reference to paragraph (d) of subsection (2) (“failure by the tribunal to deal with all the issues that were put to it”).

In those circumstances, now that I have heard oral submissions, including extensive submissions from T himself acting in person for which I am grateful, it is in my judgment clear that there is no irregularity in this case falling within section 68(2) and, therefore, the application to remit or set aside the award must fail.

Strictly speaking, it is therefore not necessary to consider the question of whether the irregularity has caused substantial injustice. T says that there would have been important evidence relating to the circumstances in which a new partnership agreement was executed which would include evidence relating to the state of his health and the circumstances in which he says that he was tricked into signing that partnership agreement. He says also that he has complaints as to the adequacy of the disclosure provided by V and W and that the partnership accounts which formed the basis for their claim were significantly in error.

It is possible, at least in theory, that on at least some of these issues an oral hearing may have made some difference, but it is difficult to see that there is any real likelihood of that. The award considers T’s case about these matters which was set out in writing with considerable care. It is based primarily on the contemporary documents making clear that it was T’s intention to retire from the practice and be a consultant to it, which would rule out any possibility of him setting up his own practice in competition during the period when he would have been serving his notice. As a result of T’s health, V and W were prepared to agree that he need not serve that notice. Instead of doing what he had said he would, T set up a competing practice. The arbitrator went into all these matters.

As I said earlier, it is possible that an oral hearing may have made some difference but that it is the highest it can be put. It is largely speculative. In the particular circumstances of this case, it cannot be said that an oral hearing might well have made a difference, that being the appropriate test for substantial injustice. I emphasise that I am not laying down any general principle that a failure to afford a party a right to an oral hearing (where it has such a right) will not cause it a substantial injustice. Such a general principle would be wrong. It all depends on the circumstances of the particular case. However, it is not necessary to go further into this issue because this claim must fail on the basis that there is no irregularity falling within the closed list in section 68(2). It follows that the section 68 application must be dismissed.

There is therefore no need to consider the questions relating to security for either the amount in dispute or the costs of the section 68 proceedings.