RJ & Anor v HB

This claim concerns a final award dated 23 March 2017 (‘the Final Award’) in an ICC arbitration between the defendant (‘HB’), who was the claimant in the arbitration, and the claimants (‘RJ’ and ‘L Ltd’), who were the respondents in the arbitration, as amended by an addendum dated 14 July 2017 (‘Addendum 1’) and an addendum to the addendum dated 29 September 2017 (‘Addendum 2’). I shall refer to the Final Award thus amended as ‘the Award’. It is the work of a sole arbitrator (‘the Arbitrator’). He is a very senior English QC, well known and highly regarded in the world of international commercial arbitration, who was jointly nominated by the parties for appointment and duly appointed on their nomination by the Secretary-General of the ICC under the ICC Rules.

HB and RJ are wealthy individuals; L Ltd is effectively a corporate vehicle of RJ’s, although the ownership and control are indirect. Strictly speaking, there were two ICC arbitrations, in one of which only L Ltd was respondent, but they were consolidated and it is not necessary for my purposes to go into the detail of that.

The arbitrations arose out of arrangements entered into between HB and RJ for an investment by RJ in the banking sector. Through separate corporate vehicles of his, HB owned a controlling interest in a bank (‘Bank 1’) and in another business. In 2013, HB identified an opportunity to expand his banking interests by using a mix of cash and his controlling interest in Bank 1 to acquire a controlling interest in another bank (‘Bank 2’). This would involve merging Bank 1 into Bank 2.

By November 2013, RJ had been introduced to HB as a potential investor and they had agreed in principle that RJ would provide US$75m in cash, through L Ltd as investment vehicle, to enable HB to acquire the proposed controlling interest in Bank 2, with a view to RJ receiving, ultimately, a minority interest in Bank 2 after completion of the Bank 1-Bank 2 merger. For regulatory compliance reasons concerning HB’s acquisition of control over Bank 2, that acquisition could not be funded by borrowing. Therefore, the agreement in principle between HB and RJ could not be implemented by RJ (or L Ltd) lending HB US$75m.

Instead, and at the risk of over-simplification for present purposes, the following transaction structure was adopted:

In December 2013, HB contracted to sell to L Ltd a 49.5% share in the company (‘X Ltd’) through which he owned Bank 1, for US$55m, and a 49.5% share in the company (‘Y Ltd’) through which he owned the other business, for US$20m. The aggregate price of US$75m was payable, and was paid, up front, but the respective share transfers were deferred, buying HB time to acquire the intended controlling interest in Bank 2 and merge Bank 1 into Bank 2.

In March 2014, the ‘Merger Phase Agreements’, as the arbitrator dubbed them, were concluded. One issue resolved in HB’s favour by the Award was whether the Merger Phase Agreements were binding upon RJ and L Ltd. In addition, claims by RJ and L Ltd that they were procured to conclude those Agreements by fraud and/or that HB was in breach of warranty under them failed before the Arbitrator.

The Merger Phase Agreements provided, inter alia, for the termination of the December 2013 transactions, for HB to procure that Bank 2 acquire Bank 1 (so far as that was lawful and subject to the obtaining of any necessary authorisations), and (putting it neutrally) for the possibility of the acquisition by RJ, or by an ‘Affiliate’ nominated by him for the purpose, of 25% of the post-merger Bank 2, less 1 share, for c.€55m (then equivalent to US$75m), so far as that was lawful and subject to the obtaining of any necessary authorisations. The primary provision as regards RJ’s acquisition, directly or through an Affiliate, of the proposed shareholding in the post-merger Bank 2 was Clause 4.2(A) of a Deed of Termination and Option (‘the Deed’), one of the Merger Phase Agreements.

Again putting it neutrally, the Merger Phase Agreements also sought to cater for the possibility that that final stage was not completed. In that regard, one possible outcome was an entitlement in L Ltd to be paid US$75m plus interest after 31 December 2018. The circumstances in which that outcome might result are or may be contentious between the parties.

HB did procure that Bank 2 acquire Bank 1, as envisaged by the Merger Phase Agreements, but there has not been a share transfer of 25% less 1 share to RJ or an Affiliate nominated by him. In the arbitration, HB alleged that RJ and/or L Ltd were in breach of an obligation to obtain, or at all events reasonably diligently to seek to obtain, necessary authorisation.

By the Award, which is by nature a final award of arbitration determining all claims and counterclaims pursued, and matters of costs, reserving nothing for further determination by the arbitrator:

It was declared that RJ and L Ltd’s counterclaims failed, and they were dismissed.

It was declared that RJ and/or L Ltd were in breach of the Merger Phase Agreements.

It was declared “that [RJ] is the beneficial owner of the shares in [Bank 2] purchased with his or [L Ltd’s] US$75 million.” (Award #3)

Provision was made for costs and the payment of interest on costs.

Finally, it was provided that “All other claims and requests are dismissed.” (Award #6)

RJ and L Ltd claim that Award #3 is affected by serious irregularity within s.68 Arbitration Act 1996. They also invoke s.67, in part of their claim, but in truth no s.67 question arises. On the basis of serious irregularity as alleged, RJ and L Ltd ask the court:

to set aside Award #3 and associated paragraphs of reasoning, with a direction that relevant matters be now determined afresh by a new arbitrator (to be appointed); alternatively

to set aside Award #3 and associated paragraphs of reasoning, with a direction that relevant matters be now determined afresh by the Arbitrator; alternatively

to remit Award #3 and associated paragraphs of reasoning to the Arbitrator for reconsideration.

I have identified the pleas for relief in that order, since they now represent RJ and L Ltd’s primary and successive alternative cases. When the claim was first formulated and issued, however, before either Addendum, the primary relief sought was remission. The submission now made is that the Addenda render it inappropriate for there to be remission (there should be a setting aside) and indeed render it inappropriate for matters to be returned to the Arbitrator (there should be a new arbitrator).

The nature and basis of the claim asserted has been set out throughout in an Annex to the Claim Form, by way of statement of case. It was amended after Addendum 1 to strike through the request for remission, promoting what had been an alternative request for the setting aside of the Final Award to become the primary plea, and to add criticisms of Addendum 1 and a plea that it would not be appropriate to remit. It was still not said that the Arbitrator ought to be removed.

That plea emerged, albeit rather less than directly, in a re-amendment of the Annex following Addendum 2. The final sentence of a short additional section criticising Addendum 2 asserted that a particular change effected thereby was “Not only … an impermissible excess of power or jurisdiction but … further evidence of the invidiousness of remitting this matter back to the same Tribunal, when the Tribunal has already made a number of attempts to achieve the same result”. That drafting (in particular, “further evidence”) betrays to my mind a misunderstanding that the prior amendment, asserting that remission was not appropriate, was or implied a plea for the removal of the Arbitrator. An additional paragraph in the section of the Annex setting out the relief sought asserted that Addendum 2 reinforced the inappropriateness of remission, but also added: “The Tribunal has now addressed the question of relief on three occasions and it is invidious for the Tribunal to have to reconsider what it has decided and already reached a view on”.

A third witness statement from RJ and L Ltd’s solicitor in support of the claim, served after Addendum 2 but before the re-amendment of the Annex, explained more explicitly that the primary plea now was for a new arbitrator (and indeed it proposed a number of candidates for appointment), although in places it continued to labour under the misapprehension that setting aside rather than remitting an award involved without more, or required, replacing the tribunal.

Leaving aside matters of detail (for example, how if the claim succeeds to define the matters to be determined afresh or reconsidered, or deal with Award #6), those pleas for relief give rise to the following issues:

Is Award #3 affected by serious irregularity?

Which paragraphs in the Arbitrator’s reasoning are affected thereby?

Should Award #3 and associated reasoning be set aside because it would be inappropriate to remit them for reconsideration?

Should the fresh determination of matters thus required be left to the Arbitrator or should there be a new appointment?

In relation to the last of those issues, raised by re-amendment as I have explained above, RJ and L Ltd appear to have assumed, as did Akenhead J in Secretary of State for the Home Department v Raytheon Systems Ltd (No. 2) [2015] EWHC 311 (TCC), [2015] 1 Lloyd’s Rep 493, that s.68 of the 1996 Act empowers the court to replace an arbitral tribunal ‘guilty’ of serious irregularity (or require its replacement). In the only other s.68 case shown to me in which an arbitral tribunal was removed, the claimant appears to have assumed, to the contrary, that for removal an application under s.24 of the Act was required (Norbrook Laboratories Ltd v Tank [2006] EWHC 1055 (Comm), [2006] 2 Lloyd’s Rep 485). Likewise the claimants in Brake v Patley Wood Farm LLP [2014] EWHC 1439 (Ch), although in that case the s.68 claim failed anyway. In Ascot Commodities NV v Olam International Ltd (Toulson J, 8 November 2001), [2002] CLC 277, an award of a GAFTA Board of Appeal was set aside under s.68, but the matter went back to the same Board of Appeal, Toulson J observing that he “certainly would not propose to say that the same Board should not go back to the matter” and the successful claimant making clear there was no objection to the same Board being asked to revisit matters.

Whether there is power to remove under s.68, or only under s.24, is an important question of principle. It did not arise in Norbrook or Brake because a s.24 application was made; it did not matter in Ascot Commodities because there was no suggestion there of not allowing the same Board of Appeal to revisit matters. The question of principle should have arisen in Raytheon (No.2), but that does not seem to have been appreciated by the parties in that case or by Akenhead J. None of the judgments gives any consideration to the question.

Because RJ and L Ltd did not identify a need to apply under s.24, if there be such a need, the Arbitrator is not a defendant to this claim as would be required by CPR PD62.6(1). It is said that the Arbitrator nonetheless has notice of the claim, and in particular that he was sent copies of the third witness statement in support that for the first time sought his removal (see paragraph 12 above). Given, however, the failure to join the Arbitrator as a defendant, as would be required for a s.24 claim, and the less than direct and somewhat confused way in which removal has been introduced to the case, I have no doubt that it would be inappropriate to contemplate removal of the Arbitrator under s.24 on this hearing.

For RJ and L Ltd, Mr Joseph QC submitted that in the circumstances, if I answered issues (i) and (iii) in his favour, so that issue (iv) arose, I should on this hearing set aside Award #3 and associated reasoning and then: (a) deal on its merits with the question of removing the Arbitrator, if persuaded that s.68 empowers removal; or (b) adjourn any question of removal, if persuaded that removal would require a s.24 claim, to allow for the possibility of re-re-amendment and joinder of the Arbitrator as a defendant. For HB, Mr Kimmins QC submitted that if removal required a s.24 claim, I should dismiss that element of the claim come what may, the failure to make any claim under s.24, joining the Arbitrator as a defendant as required by the CPR, being a ‘serious and fundamental procedural flaw’. He also submitted that since the ICC Court had power under Articles 14 and 15 of the ICC Rules to remove the Arbitrator but RJ and L Ltd did not seek to avail themselves of that remedy, the power to remove the Arbitrator under s.24 could not be exercised in this case (see s.24(2)).

For the reasons I give below, in my judgment:

Award #3 is affected by serious irregularity within s.68 of the 1996 Act. That was so for the Final Award as originally issued; the Addenda do not solve the problem.

The serious irregularity affects all of the following: (a) in the Final Award, paragraphs 11-12, 225-227 and 238-248 (save for the first sentence of paragraph 225), Award #3 and Award #6; (b) in Addendum 1, paragraphs 23-76 and ‘Dispositif’ paragraphs 2 and 4; (c) in Addendum 2, paragraphs 16-49. I shall consider with counsel when this judgment is handed down whether that is a complete list.

It is inappropriate to remit Award #3 and the affected reasoning for reconsideration. Award #3 should be set aside, together with the affected reasoning, and I shall consider with counsel what needs to be done with Award #6 and how precisely I ought to define the matters that require to be determined afresh.

There is no serious case for HB (or the Arbitrator) to answer as to whether the fresh determination now required should go to a new arbitrator.

It will be appreciated that the result will be that the Arbitrator must resume the arbitration. Subject to finalising, by my order on this judgment, the scope of that resumed arbitral process, the Arbitrator’s fresh consideration of the matter will be by reference to such further procedure in the arbitration as he may in his discretion decide to be appropriate. In some of Mr Kimmins QC’s submissions for HB, I was invited to examine aspects of the merits on the basis, as he contended, that they affected whether there was any serious irregularity affecting the Award. I shall restrict myself, on those aspects, to the minimum necessary to explain my conclusion that the Award is indeed so affected, since the detail must now be for the Arbitrator when he examines the merits afresh.

To the extent indicated by paragraph 18(i)-(iii) above, this claim succeeds under s.68 of the 1996 Act. To the final extent indicated by paragraph 18(iv) above, the claim fails whether or not it could have succeeded under s.68. It is therefore not necessary to decide the question of principle whether the court can remove an arbitral tribunal under s.68, so I have not lengthened this judgment by a full consideration of the question. My conclusion on it, however, would have been that s.68 does not empower the court to remove an arbitral tribunal, that being reserved to s.24, and that a direction purportedly pursuant to s.68, as part of setting aside an award, in whole or part, that matters thus requiring fresh determination should go to a new tribunal, would amount to removal of the original tribunal and so would require a s.24 claim.

In the particular circumstances of this claim, had there been a case to answer on the facts, I would have wished to consider further with the parties Mr Joseph QC’s request for an adjournment of the question of removal, with permission possibly being given to re-re-amend the claim and join the Arbitrator as a defendant. Given the procedural history, there is a sense in which RJ and L Ltd could not reasonably complain if the court dismissed the possibility of removal because no s.24 claim was made. However, there would also be something quite unsatisfactory about simultaneously concluding that there was a real case to answer as to whether the Arbitrator should be removed and sending matters back for fresh determination by him. That would seem to me an inappropriate use of the supervisory jurisdiction of the court under s.68, this case having proved to be one of those where that jurisdiction is engaged, ever sparingly exercised though it is, even without exploring (as to which I did not have evidence) whether it would in practice generate any difficulty in relation to recognition or enforcement (for either side, as may be relevant depending on how the fresh determination of matters by the Arbitrator turned out). I would not have accepted Mr Kimmins QC’s submission that s.24(2) of the Act and Articles 14-15 of the ICC Rules would have precluded removal of the Arbitrator under s.24, as matters would then have stood; but there would have been an interesting question to consider whether removal under s.24 was available in this claim (subject to re-re-amending and joining the Arbitrator), or would be a matter for a fresh claim, arising only upon the setting aside (in part) of the Award, with RJ and L Ltd then being required, by s.24(2), first to seek removal under Articles 14-15 before making any such further claim.

The essential foundation of the s.68 claim is that, so Mr Joseph QC submits, the Arbitrator has granted, by Award #3, relief that was never sought by HB and that is significantly different to anything for which either HB, or RJ and L Ltd, contended. He did so, it is said, without notice to the parties that he was considering doing so, depriving RJ and L Ltd (and for that matter equally depriving HB) of any opportunity, let alone a proper opportunity, to address any such case.

The place to start in considering those foundational submissions is the relief sought by HB at the arbitration. He sought the following:

a declaration that RJ was bound by the Deed and that he was bound as a result to take various actions, one of which (as alleged) was to sign and return to HB a notice of change of shareholder in Bank 2 identifying himself (RJ) or a nominee entity as the new shareholder;

a declaration that RJ “must perform his obligation to accept (or to procure that an Affiliate of his accepts) delivery of the shares [in Bank 2] offered to him by [HB]” and/or that he was (and remained) obliged to use best endeavours to obtain a certain regulatory approval for the intended shareholding of 25% less 1 share, and was in breach of that obligation;

a declaration that L Ltd was bound by the Deed and must perform its obligations thereunder; alternatively that it was estopped or precluded from exercising any rights under the December 2013 transactions;

alternatively to (i)-(iii), damages against RJ for breach of the Deed;

various declarations as to the lack of continued effect (as HB claimed) of the December 2013 transactions.

On the face of things, then, HB did not seek anything materially similar to Award #3. More than that, the entire premise of HB’s claim was that RJ had not taken the intended shareholding in Bank 2 (directly or through a nominee), indeed that he had wrongfully set his face against doing so. That was what drove every element of the relief sought.

RJ and L Ltd’s position was not that they had taken the Bank 2 shareholding, subject perhaps to formalities not completed; it was that, as HB claimed, the Bank 2 shareholding had not been taken and RJ no longer wished to take any such shareholding, but that the failure to complete the transaction was not and did not involve any breach of contract on the part of RJ or L Ltd. They denied in any event that specific performance should be granted of any obligation to take a shareholding in Bank 2. Part of that denial was an important contention that it would be wrong to require RJ to take shares in Bank 2 without regulatory approval, so that damages was the appropriate remedy; or in the alternative any specific enforcement remedy should only be in accordance with the obligations created by the Deed, i.e. to use best endeavours to obtain regulatory approval and, only if such approval were granted, to purchase the shares.

The basis upon which the claims and cross-claims in the arbitration were presented and argued, therefore, was that any obligation to take a shareholding in Bank 2 had not been performed. The rejection of RJ and L Ltd’s arguments denying the effectiveness of the Merger Phase Agreements did not undermine that proposition; rather, it set the scene for determining what, if any, relief it was appropriate to grant in favour of HB beyond the dismissal of RJ and L Ltd’s counterclaims. There was no suggestion before the Arbitrator, by either side, that RJ already had some ownership interest in Bank 2 shares. There was no consideration given during the arbitration to any possible distinction that might be drawn in law between legal title and equitable ownership in Bank 2 shares. There was no suggestion that, if RJ had become obliged to take but had wrongfully failed to take the proposed shareholding in Bank 2, HB’s damages would be nominal on the basis that his shareholding in Bank 2 was, to the extent of 25% less 1 share, held beneficially on behalf of RJ.

There was no dispute before me but that it is a serious irregularity within s.68(2) of the 1996 Act for an arbitrator to decide a dispute on a basis significantly different to anything raised by or with the parties, if that causes or will cause substantial injustice. I say ‘by or with’ the parties because of course arbitrators are not restricted to choosing between whatever rival contentions are developed by the parties; but if they are to contemplate determining a dispute on some different basis, fairness dictates, and so the arbitrators’ general duty of fairness under s.33 of the Act requires, that the parties be given notice and a proper opportunity to consider and respond to the new point.

Therefore, the debate before me, as to serious irregularity in the present case, was a debate over (a) whether the possibility of resolving matters by reference to an analysis that under the Merger Phase Agreements RJ beneficially owned 25% less 1 share, irrespective of any share transfer pursuant to Clause 4.2(A) of the Deed, was raised with the parties sufficiently that they had a proper opportunity to deal with it, and (b) if not, whether substantial injustice has resulted or will result.

Mr Kimmins QC argued that the beneficial ownership analysis was sufficiently ‘in play’ that RJ and L Ltd had a reasonable opportunity to deal with it because of three brief exchanges during oral closing submissions in the arbitration on 26 May 2016 and the procedure the Arbitrator later adopted for the preparation of the Final Award. The exchanges on 26 May 2016, which was a single day of oral closing argument sitting from 9.30 am until just after 4.00 pm, were these:

just after 11.55 am, during HB’s submissions, the Arbitrator made clear that he was uncomfortable at the prospect of granting relief that might require ongoing supervision (through the continuation of the arbitral process) of the parties’ conduct under or pursuant to the Deed;

just after 2.10 pm, during RJ and L Ltd’s submissions, the Arbitrator sought to clarify the then present position as regards the US$75m and the shares and was told that HB had had the US$75m and owned the shares – “[HB] bought the shares using the $75 million. He effected the merger. He holds the shares in the merged entity that he wants to transfer to [RJ]. I don’t think that is in dispute.” – and no suggestion was made on HB’s behalf that that was in dispute;

at 2.26 pm, again during RJ and L Ltd’s submissions, in discussing HB’s damages claim, the Arbitrator returned to the theme ((i) above) that relief involving the potential for ongoing dispute was undesirable. It would be better, he suggested, for there to be a clean ‘divorce’, by having “orders that would hopefully say to [HB] and [RJ], ‘This is your shareholding, that’s your shareholding, you don’t have to talk to each other, just go your separate ways, and then in 2018, 2019, 2021, if you want to get rid of your shares, [RJ], you get rid of them’, and that’s it.” In that context, the Arbitrator observed that the scheme of the Merger Phase Agreements was that “the shares are acquired with the benefit of any applicable authorisations, and they go to [RJ] or an affiliate or to a successor; not that they continue to be held by [HB]”, to which RJ and L Ltd’s solicitor assented.

All of that, as Mr Kimmins QC pointed out, was against the background that, if specific performance were not available (so that RJ did not take the shares), the assessment of any damages in favour of HB would have to take account of his prima facie obligation, the share transfer not having occurred, to repay the US$75m at the end of 2018.

Armed now with the Award, it is possible to read those exchanges, particularly the last of the three, as a hint that something like what became Award #3 may have been starting to go through the Arbitrator’s mind. Even then, there is a real difficulty with the Arbitrator’s apparent logic, to which in my judgment Mr Kimmins QC had no answer, namely that declaring RJ to be beneficial owner of 25% less 1 share, part of HB’s holding in Bank 2, is no kind of clean divorce. More importantly, however, given the basis upon which the claims and cross-claims had proceeded, I am satisfied that those exchanges did not do enough to put the parties on notice, fairly or at all, that the Arbitrator might be contemplating such a declaration. Specifically, as regards the last of the three, the Arbitrator’s observations would reasonably have seemed just an exploration of the consequences of ordering RJ to take the 25% less 1 share (by way of specific performance, as claimed); and his comment that under the scheme of the Merger Phase Agreements, it was not intended that HB be left with all the shares, would reasonably have seemed only a correct observation that the value of the holding of 25% less 1 share that it was contemplated would go to RJ would need to be brought into account in any damages award (if there was no specific performance).

The procedure adopted by the Arbitrator in the preparation of the Final Award was somewhat unusual, although well within his procedural discretion and not itself the subject of any complaint. On 16 December 2016, he published a Partial Final Award (‘the Partial Award’). Sections I to III of the Partial Award formally introduced the parties and the reference (paras.1-14). Section IV (‘The Witnesses’) and Section V (‘The Facts’) then set out the Arbitrator’s detailed findings of fact (paras.15-218). Section VI (‘Summary’) set out or summarised the Arbitrator’s principal evaluative conclusions (paras.219-227), which I quote in full below but on the basis of which, at Section VII (‘Orders’) the Partial Award made no dispositive award in relation to any of the claims or cross-claims in the arbitration but rather gave the parties a fixed, limited period to see if what was said in the Partial Award enabled them to resolve their dispute, failing which “the Tribunal will complete its mandate and make orders consequent upon the findings of fact set out in this Partial Final Award”.

Nothing in the Partial Award, in my judgment, should have caused RJ and L Ltd (or HB, for that matter) to appreciate that the Arbitrator had in mind something like Award #3 and, in consequence, the dismissal of all of HB’s claims for relief beyond his claim for a declaration that RJ and L Ltd were in breach. This is not therefore the occasion to discuss whether, if they should have realised that that was or might be coming, the s.68 claim now made could succeed though they did not raise any concern with the Arbitrator before he proceeded to publish the Final Award.

I am therefore satisfied that the Award is affected by a procedural irregularity. Disposing of HB’s claims for relief founded upon the conclusion that RJ and L Ltd were, but HB was not, in breach of the Merger Phase Agreements, by dismissing all of those claims and granting instead a declaration that RJ is the beneficial owner of shares in Bank 2 held by HB, was not something sought by HB, suggested by RJ and L Ltd, or raised by the Arbitrator with the parties as a possible alternative disposal so as to give them a reasonable opportunity to deal with it. There is nothing in the evidence, apart from the matters relied on by Mr Kimmins QC, that might even give rise to an argument that the parties were fairly alerted to the possibility that the Arbitrator might have such a disposal in mind; and there is nothing in the argument that those matters in fact so alerted the parties.

This s.68 claim is made out, therefore, requiring then a consideration of what relief it is proper to grant, if that procedural irregularity has caused or will cause substantial injustice. As to that, under the Award RJ is declared beneficially to own a large minority stake in Bank 2 that he does not wish to own, for which he does not have a regulatory approval that he would require at least for the exercise of voting rights, his ownership of which exposes him at least to a real risk of financial penalties imposed by the regulator and which he may be bound by contract not to dispose of for a substantial period yet. Those disadvantages of such a beneficial interest notwithstanding, it can readily be envisaged that its existence, as declared, will be said by HB to mean he does not have to repay the US$75m at the end of this year. Furthermore, although it is fair to say that I was not given specific evidence to value the beneficial interest RJ has been declared to own, it is equally fair to infer that it could well be materially less than US$75m (else HB would not have been asserting a damages claim in the arbitration). I have no doubt at all that it is a substantial injustice for RJ and L Ltd to be put into that position without having had a proper opportunity to address it as a possible outcome, unless as Mr Kimmins QC argued there is no sensible room for arguing that Award #3 is incorrect in law.

It is no answer to say, as Mr Kimmins QC also argued, that any risk of regulatory penalties results from RJ’s own breach or that any difference between US$75m and the value of the relevant shareholding must, ultimately, be for RJ’s account as between the parties if RJ was the party in breach (so, for example, Mr Kimmins QC argued that if there were no beneficial ownership in RJ and if then L Ltd were entitled to be repaid its US$75m, HB would have a damages claim against RJ for that difference in value). Even if, doing the best the Arbitrator can in assessing monetary claims and cross-claims, the aim will be to put HB in the financial position he would have been in had RJ complied with his obligations, (a) it is not established by the Award that that will mean a counterfactual transfer of the relevant shareholding (as that may depend on whether RJ was in a position by the exercise of reasonable diligence to obtain necessary regulatory approval) and (b) even if it would mean a counterfactual transfer, the fact remains that RJ (and/or L Ltd) having only monetary liabilities to HB (and/or an entitlement to something less than full repayment of the US$75m) is legally and practically a very different situation, for RJ, than that which has been declared to obtain. Testing it this way, whilst I can see there was real room for RJ and L Ltd’s argument in the arbitration that damages were an adequate remedy for HB (so that specific performance should not have been ordered), I should have thought HB would be in some difficulty suggesting that damages were an adequate remedy if RJ had the beneficial ownership declared and HB had an obligation to take it from him.

As regards, then, the primary argument of Mr Kimmins QC as to substantial injustice, namely whether Award #3 is in any event plainly correct, here above all it is important that I say no more than is strictly necessary for the present purpose of dealing with this claim (cf paragraph 19). Suffice it therefore to say that to my mind there is, and therefore had the point been raised with the parties there would have been, real room for debate over whether any beneficial interest passed to RJ, or subsisted even if specific performance were not ordered.

My conclusion on Issue (i), therefore, is that indeed the Award is affected by serious irregularity within s.68 of the 1996 Act, as RJ and L Ltd have claimed.

To identify how much of the Award is affected, I return to the procedure adopted by the Arbitrator, publishing first the Partial Award. Section VI of the Partial Award was as follows:

Section I of the Final Award was an Introduction (paras.1-16). Then, Sections IV and V of the Partial Award (paras.15-218) were reproduced as paras.17-219 of Sections II and III of the Final Award (paras.22-23 in the Partial Award were combined into a single para.24 in the Final Award; hence there was one fewer paragraph in this section of the Final Award). Section III of the Final Award continued by repeating paras.219-224 of Section VI of the Partial Award, now as paras.220-225 (first sentence). Section III of the Final Award concluded, then, as follows:

Section IV of the Final Award summarised the parties’ submissions (paras.228-237) before continuing, under a subheading ‘Discussion’, thus:

That then explains Award #3. In the Final Award, it was a declaration “that [RJ] and/or [L Ltd] is the owner of the shares in [Bank 2] purchased with his and/or [L Ltd]’s US$75 million”. It was amended by Addendum 1 to declare “that [RJ] is the beneficial owner of the shares in [Bank 2] purchased with his or [L Ltd]’s US$75 million”.

The Arbitrator’s reasoning thus appears to have been as follows:

because HB was not in breach of contract, RJ was not entitled to the return of his US$75m investment;

therefore, RJ owns shares in Bank 2 to the value of US$75 million presently held in HB’s name;

that is so whether or not specific performance would be or is granted;

specific performance should not be granted because of difficulties of enforcement;

because RJ owns shares in Bank 2 to the value of US$75 million presently held by HB, it is difficult to see that HB has suffered or will suffer any damage by reason of RJ’s or L Ltd’s breach of contract;

any award of damages in favour of HB would be “for the future” (even though HB claimed damages, that claim was being dismissed, and the Arbitrator was not reserving jurisdiction);

the declaratory relief in fact granted as to RJ’s ownership of shares in Bank 2 presently held by HB would have the same effect as an award of specific performance.

Applying once again the self-denying ordinance of paragraph 19 above, in this judgment I shall say only that there seems to me to be room for argument as to every aspect of that reasoning. None of it in my judgment reflects or arises out of the claims to relief advanced by HB, given how they were developed, or the answers to those claims put forward by RJ and L Ltd. All of it to my mind reflects and arises out of the Arbitrator’s decision, without notifying the parties so as to be assisted by their submissions, to contemplate a determinative disposal of the arbitration reference by way of Award #3 rather than by way of any of the solutions advocated by either side before him. Moreover, as I think became common ground during the argument before me, Award #6 (the dismissal of all claims and requests not dealt with by Award ##1-5) is also a by-product of, and therefore affected by, that decision.

Furthermore, it appears from paras.11-12 of the Final Award, part of the Introduction, that at all events the initial steps in the Arbitrator’s reasoning (paragraph 43(i)-(ii) above) may have been what led him to publish the Partial Award and give the parties a chance to agree the consequent outcome. It is to be regretted that he did not spell that out in or at the time of the Partial Award. After referring at para.10 to the facts that RJ had invested a very substantial sum and that in the Partial Award the Arbitrator had found that RJ and L Ltd were in breach of the Merger Phase Agreements, the Arbitrator continued:

In my judgment, with respect, all that I have quoted from the Final Award in the section of my judgment is a by-product of the serious irregularity I have found to affect the Award, finding a place in the Final Award only because of that irregularity and the related absence of relevant submissions from the parties.

Article 35 of the ICC Rules is entitled “Correction and Interpretation of the Award; Remission of Awards”. Article 35.1 provides that an ICC Arbitral Tribunal may correct “a clerical, computational or typographical error, or any errors of similar nature contained in an award”. Article 35.2 provides a time limit and a procedure for any application by a party for the correction of error within Article 35.1, “or for the interpretation of an award”. In the present case, both sides made timely applications under Article 35.2. Leaving aside minor points that do not affect this judgment:

By a Request dated 26 April 2017, HB sought correction of the reference in para.238 to RJ being the owner of shares “in [Bank 2] to the value of US$75 million”, suggesting it should refer to shares “equating to 25% less 1 share of the issued share capital of [Bank 2] as at October 2014”.

By a Request dated 27 April 2017, RJ and L Ltd sought correction or interpretation of Award #3, as to clarify (a) whether RJ, L Ltd or both was declared to be the owner of shares in Bank 2, (b) when the transfer of ownership was said to have taken place and (c) whether the declared ownership was legal or beneficial.

By Responses dated 15 and 26 May 2017 respectively, HB and RJ/L Ltd responded to the other’s Request. HB served Additional Submissions dated 14 June 2017 supplementing what he had said both as to his request for correction of para.238 and RJ/L Ltd’s request for interpretation of Award #3. RJ/L Ltd responded to those Additional Submissions with Additional Submissions of their own dated 21 June 2017.

Having considered those Requests, Responses and Additional Submissions, the Arbitrator published Addendum 1 dated 14 July 2017. He confirmed, in substance, that his intention at para.238 of the Final Award was to refer to the holding of 25% less 1 share in Bank 2 as envisaged by the Merger Phase Agreements (although in error Addendum 1 referred to 25% less 1% rather than 25% less 1 share), and clarified that his intention by Award #3 was to declare RJ (rather than RJ and/or L Ltd) to be the beneficial owner of such a holding.

In my judgment, if proceeding by way of Award #3 had been procedurally regular in the first place, there could be no sensible complaint about Addendum 1. Taken in isolation, there is perhaps room for the argument advanced by Mr Joseph QC for RJ and L Ltd that the change to para.238 of the Final Award fell outwith the scope of Article 35.1. However, that change was readily within the Arbitrator’s power to interpret Award #3 so as to clarify the matters upon which RJ and L Ltd sought interpretative clarification. Furthermore, as to substance, there could be no conceivable complaint as to the effect of Addendum 1 as regards para.238 of the Final Award, or as regards Award #3, if para.238 or Award #3 respectively otherwise stood.

On the other hand, as will be self-evident, Addendum 1, to the extent it amended para.238 and Award #3, is likewise entirely a by-product of the procedural irregularity of contemplating disposal of the reference by way of Award #3 without fair notice to the parties.

Addendum 2 dated 29 September 2017 was published following a further Article 35 application by HB, by Request dated 18 August 2017 seeking a number of corrections. RJ and L Ltd provided a Response to that Request on 7 September 2017. Leaving aside uncontentious matters, the Request focused on one paragraph in the discussion in Addendum 1 of the parties’ submissions on RJ/L Ltd’s request for interpretation of Award #3. In that paragraph, para.63 of Addendum 1, the Arbitrator summarised a submission of HB’s as having been that regulatory approval “was not a pre-requisite simply to the acquisition of shares … in contrast to the necessity of obtaining such approval in order to acquire a controlling interest …” (emphasis original to Addendum 1). HB’s submission in that regard had in fact been that there was a contrast between acquiring shares, on one hand, and being entitled to exercise voting rights where the shareholding exceeded 10%. By Addendum 2, the Arbitrator acceded to HB’s request to amend para.63 of Addendum 1 so as accurately to reflect the submission HB had actually made. In substance, the Arbitrator confirmed that it had been his intention by that paragraph to accept that submission of HB’s.

That change to para.63 of Addendum 1 is of no independent relevance to the parties. Whether that ‘correction’ stands or falls makes no difference whatever to the parties unless Award #3 is being reconsidered or set aside. If Award #3 is being reconsidered or set aside, likewise para.63 of Addendum 1 and so also its ‘correction’ by Addendum 2.

Finally as to Addendum 2, before summarising, two of the uncontentious parts of Addendum 2 were agreed corrections to parts of Addendum 1 affected by the serious irregularity I have found: correcting an obvious typographical error in para.39 of Addendum 1; and correcting the correction made by Addendum 1 to para.238 of the Final Award (on the point I noted in passing in paragraph 48 above).

In summary, therefore, in my judgment all of the following are affected by the serious irregularity I have found to affect the Award:

Award ##3 and 6;

paras.11-12, 225-227 and 238-248 of the Final Award (other than the first sentence of para.225);

Addendum 1, to the extent it deals with para.238 of the Final Award and Award #3, which means paras.23-76 and Dispositif paras.2 and 4 of Addendum 1;

Addendum 2, to the extent it deals with parts of Addendum 1 referred to in (iii) above, which means paras.16-49 of Addendum 2.

I was referred to many prior decisions in which a s.68 claim succeeded and the question arose whether to remit or set aside the affected award or part(s) of an award. The ‘default’ option is to remit because s.68 says so – by s.68(3), the court may only set aside if satisfied that it would be inappropriate to remit.

Mr Kimmins QC prepared a helpful note briefly summarising the issues in and results of cases in which s.68 claims have succeeded because arbitrators have determined disputes upon a basis the s.68 claimant did not have a fair opportunity to address. At my invitation, Mr Joseph QC replied to that note after the hearing by annotating a copy with any amendments or additions he would wish to make. With very minor exceptions that I have taken into account, Mr Joseph QC’s changes were agreed; so the final version of that summary of prior cases now reproduced as an Appendix to this judgment was uncontentious.

Although, by reference to those prior illustrations and to various more general discussions of the principles, the question whether to set aside rather than remit in this case occupied a substantial proportion of the argument, to my mind it is obviously a case for setting aside. The nature of the serious irregularity, as I have held it to be, the extent of its impact on the dispositive relief under the Award as things presently stand, and the degree to which the position has become complicated by the overlaying of reasoning upon reasoning through the two Addenda, render it essential that the question of the proper relief to award to HB, beyond the dismissal of RJ and L Ltd’s counterclaims and the declaration that RJ and L Ltd were in breach of the Merger Phase Agreements, be examined afresh, without any question of the arbitrator being in any way influenced by the Arbitrator’s consideration of Award #3 as a possible dispositive solution absent submissions from the parties to assist him in relation to it.

In the circumstances, Award #3 and all related paragraphs of the Final Award and Addenda must be set aside. As I have explained, Award #6 is also affected by the irregularity affecting Award #3, in that the Arbitrator’s adoption of Award #3 as the primary solution to the conundrum of the proper relief to grant drove his dismissal of all other claims to relief. I shall discuss with counsel whether in the circumstances Award #6 should also be set aside, with or without some order of the court defining the scope of matters to be determined afresh, or whether there is some more appropriate order in respect of Award #6.

As Mr Kimmins QC rightly emphasised, and to my mind many of RJ and L Ltd’s detailed submissions overlooked, the fact that this is a case for setting aside and not merely remission, even as I have found a clear case for setting aside, does not create any basis on its own for removing the Arbitrator.

The point can be neatly illustrated, for example, by The Ocean Glory [2014] EWHC 3521 (Comm), [2015] 1 Lloyd’s Rep. 67, summarised in the Appendix. Mr Joseph QC in his Skeleton Argument, after setting out a series of principles or factors derived from Raytheon (No.2), supra, as to when the court should set aside rather than remit, submitted thus:

I agree with Mr Kimmins QC, and with the implicit view of RJ and L Ltd when first issuing their s.68 claim, that the Final Award itself provides no foundation whatever for a submission that it is now unsatisfactory to have the Arbitrator, appointed as he was on the parties’ joint nomination, consider the question of relief afresh, taking on board as the court can trust that he will the conclusions of this judgment and the need to put out of mind that which in the light of those conclusions the court has set aside. The question is whether that conclusion is changed because of the Addenda or anything in the way the Arbitrator dealt with the parties’ Article 35 applications leading to them.

In my judgment, it is not. At its zenith, the case for RJ and L Ltd did not shrink from accusing the Arbitrator of adopting during the Addendum process any or every submission offered to him by HB as a possible justification of or legal explanation for the disposal via Award #3 which he had awarded. Mr Joseph QC was nonetheless at pains to emphasise that the honesty and integrity of the Arbitrator was not impugned. The argument was that, given the extent to which through the Addendum process the Arbitrator had restated or reinforced his reasons for Award #3, it would now be ‘invidious’ to ask him to come to the matter afresh. No matter the integrity with which the Arbitrator would seek to start his consideration again, that would be unrealistic, so the argument went, and at least the appearance would be created of an unfair process if he were asked to undertake that task.

That however misunderstands or overstates the nature and extent of the Addendum process. By that process, in substance, the Arbitrator was asked to, and did, expand to some extent on aspects of the submissions originally made in the arbitration that had fed into his conclusion that Award #3 was the answer. In my judgment, that adds nothing of substance to this final question, namely whether, having been told by the court that he ought not to have considered Award #3 as a possible answer without putting the parties on notice that he was minded to do so, there is any real reason for supposing that the Arbitrator will now be unable to approach the question of relief afresh with an open mind (or, if this is any different, whether any reasonable, independent observer of the process would think he might suffer from that difficulty).

In common with the many cases in which awards have been set aside, but there has been no suggestion the arbitrators should no longer be trusted, in this case the Arbitrator has done nothing to warrant such concern on the part of the court or the parties. The observations of Field J in Brockton Capital v Atlantic Pacific Capital [2014] EWHC 1459, [2014] 2 Lloyd’s Rep. 275, at [35], quoted in the Appendix to this judgment, are apposite in this case even though I have concluded that the proper course is to set aside the affected parts of the Award (so as to be clear that the Arbitrator is to start his consideration afresh) whereas in that case Field J in fact concluded that it was not inappropriate to remit.

The result on this hearing is that Award #3 and other affected parts of the Award will be set aside; but the Arbitrator is not to be removed. I shall enlist the assistance of counsel as to the detailed terms of the order to be drawn up.

Apis AS v Fantazia Kereskedelmi (Andrew Smith J, 23 January 2001)

Ground of successful challenge: A GAFTA Board of Appeal decided an issue of damages on the basis of an evidential assertion made at a hearing which the applicant did not attend, without adjourning the hearing, or allowing the applicant any opportunity to address this point. The applicant could not have reasonably appreciated that this issue would be raised at the hearing. The applicant argued that if adjournment had been granted it would have submitted at least 5 identified documents to the tribunal relevant to the assessment of damages under s50(3) SOGA (transcript pp.12 -14).

Order made: Remission to original tribunal; set aside rejected: “But for the procedural irregularity… the tribunal might well have had … the information from the sellers which they in fact received … and … other observations or documents from the buyers. In these circumstances, it would have been a question for the tribunal to decide what appropriate deduction in respect of transportation should be. It would be quite inappropriate for me therefore not to remit the matter and I decline to set aside the award.”

Ascot Commodities NV v Olam International Ltd [2002] CLC 277 (Toulson J)

Ground of successful challenge: The GAFTA Board of Appeal decided the case in the way in which the respondent had originally put it, despite the fact that it had put a different case before the first-tier tribunal and the Board. Further, the Board had failed to dispose of the case in the manner put by the parties and/or deal with the central issue of the nature of the respondent’s loss (see p.284). Toulson J observed that a flaw of this type is very likely in its nature to be a matter giving rise to substantial injustice (p.15 of transcript).

Order made: Set aside, but returned to same tribunal: “I see no reason at all why the people who heard this appeal should not continue to deal with the matter” (see p.286); “I certainly would not propose to say that the same Board should not go back to the matter” (p.21 of transcript). Toulson J may perhaps have assumed that s.68 conferred a discretion either to refer matters to the existing tribunal or a new tribunal (pp.18-21 of transcript).

Guardcliffe Properties Limited v City & St James [2003] EWHC 215 (Ch) (Etherton J)

Ground of successful challenge: In a rent review case, the tribunal made two substantial downward adjustments to the rent (inter alia determination of a rent free period), including one which went beyond the respondent’s own evidence in the arbitration, without hearing the parties. The tribunal also relied on another property as a comparable, without taking into account certain factual matters, and without giving the applicant the opportunity to investigate the factual position further and refute the determination of the rent free period (see paras.37-39 and 50).

Order made: Remission to the original tribunal (see paras.60-61)

Cameroon Airlines v Transnet [2004] EWHC 1829 (Langley J)

Ground of successful challenge: The majority of the tribunal had determined the issue of quantification of value under maintenance contracts by adopting an approach that had not been contended for by either of the parties, without notice and without giving the applicant the opportunity to address that key issue (see paras.105(xviii)-(xix), 107-111).

Order made: Remission to the tribunal on quantification of value of services under maintenance contracts (see para.113)

St George’s Investment Company v Gemini Consulting [2004] EWHC 2353 (John Jarvis QC sitting as a Deputy High Court Judge)

Ground of successful challenge: In a rent review case, the tribunal made the award on a basis that was contrary to agreed assumptions between the parties and confused the competing valuation methodologies that had been put forward by the parties’ experts (see para.39).

Order made: Remission to the original tribunal (see para.40)

Omnibridge Consulting v Clearsprings (Management) Limited [2004] EWHC 2276:

Ground of successful challenge: The tribunal decided an issue about the temporal application of a clause, contrary to the common position between the parties and without alerting the parties to the re-opening of this issue. The parties agreed that this was a serious irregularity (see paras.43-44).

Order made: Remission to original tribunal (see para.63)

Vee Networks v Econet [2004] EWHC 2909 (Comm), [2005] 1 Lloyd’s Rep. 192 (Colman J)

Ground of successful challenge: The tribunal reached a conclusion on the basis of the application of statutory provisions, without an argument being put by the respondent on this basis (as the respondent indeed accepted) and without putting the parties on notice (see paras.79-84). Colman J stated the substantial injustice test at para.90. The arbitrator wrote a letter to the parties and the court explaining the misunderstanding on his part as to the line of argument disposed of in the award (para.89).

Order made: Remission to original tribunal (see para.92)

BTC Bulk Transport v Glencore International AG [2006] EWHC 1957 (Cooke J)

Ground of successful challenge: The tribunal, without notice, issued a final award on the respondent’s counterclaim when they were asked only to decide an application to dismiss the counterclaim on the ground that the respondent intended to submit no further evidence in support of it. The tribunal did so in circumstances where the applicant had reserved the right to submit evidence if its application to dismiss the counterclaim failed (see paras.3 and 14).

Order made: Remission to original tribunal (see para.27). No argument recorded as to form of order.

OAO Northern Shipping v Remolcadores de Marin [2007] EWHC 1821 (Comm), [2007] 2 Lloyd’s Rep. 302 (Gloster J)

Ground of successful challenge: The tribunal decided the essential issue of whether a representation had been made, even though the applicant had considered it was no longer in issue between the parties (if it ever had been), it had not raised by the respondent, and it had not been addressed by the parties (see paras.7, 9 and 23). The tribunal also failed to deal with a quantum issue (see para.31).

Order made: Set aside and remission to original tribunal (see para.32). No discussion of form of order or difference between remission and set aside.

F Ltd v M Ltd [2009] EWHC 275, [2009] 1 Lloyd’s Rep. 537 (Coulson J)

Application was to remit – see Headnote p.540

Ground of successful challenge: The tribunal credited a sum to the respondent although there was no pleaded basis or admission in respect of the claimant’s liability to pay that sum. The tribunal made a mistake of fact that the claimant had accepted that the sum was due to the defendant (see paras.55-56).

Order made: Remission to the original tribunal (see paras.61 and 64).

Brockton Capital v Atlantic Pacific Capital [2014] EWHC 1459, [2014] 2 Lloyd’s Rep. 275 (Field J)

Ground of successful challenge: The tribunal decided an issue in respect of one part of the respondent’s new case on penalty clauses of which the applicant had no notice and which it had no opportunity to address (see paras.23 and 31).

Order made: Remission to original tribunal (see para.35); “Mr Stafford QC argued that the court should vacate both awards rather than remitting them to the existing tribunal on the ground that a reasonable person would cease to have confidence in the tribunal’s ability to reach a fair and balanced conclusion on the issues if they were remitted. I have no hesitation in rejecting this submission. 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 s.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” (see para.34).

Lorand Shipping v Davof Trading (Africa) BV (The Ocean Glory) [2014] EWHC 3521 (Comm), [2015] 1 Lloyd’s Rep. 67 (Eder J)

Application was to remit (see para.1).

Ground of successful challenge: The tribunal failed to reserve jurisdiction with respect to the non-demurrage claims before it and instead issued a final award, adopting a course in its final award that was not advocated by either party. By choosing to adopt the ‘halfway house’ of both refusing to reserve its jurisdiction and declining to determine the remaining claims the tribunal misconducted itself. In doing so, the tribunal relied on two matters that had not been raised or addressed by the parties (see paras.17(xiii)-(xiv) and 26).

Order made: Set aside the two paragraphs of the award which had the effect of dismissing the remaining claims, declaration of no effect and remission to original tribunal for determination of outstanding matters (see para.31)

Oldham v QBE Insurance (Europe) Limited [2017] EWHC 3045 (Popplewell J)

Ground of successful challenge: The tribunal awarded costs against the claimant, in circumstances where the applicant had not been heard on the question of costs and the respondent had not expressly sought an order on costs. The tribunal also ordered a payment on account of costs, without waiting for the applicant’s submissions to be received on the issue (see paras.39 and 43).

Order made: Remission to original tribunal (see para.53). Unclear if any order sought other than remission.