In P v D [2019] EWHC 1277 (Comm), the English High Court set aside an arbitral award on the basis that the tribunal had reached a finding of fact on a core issue that had not properly been put to a witness in cross-examination and that the tribunal had based its decision on a case not properly argued by the parties. Under s68 of the Arbitration Act 1996 (the “Act”), the court has the power to set aside an award on grounds of serious irregularity. It is rare for the court to exercise this power – although that does not deter aggrieved parties from submitting applications to set aside. The judgment gives important guidance on the court’s approach on this important procedural issue, and addresses considerations of fairness to witnesses in cross-examination, and to the parties putting those witnesses forward.

Background

A company, “D”, made loans to another company, “P”, under a written agreement which had a ‘no oral modification clause’. In the arbitration, D claimed that P was obliged to repay the loans under the agreement. P defended the case on the basis that its principal (Mr E) and D’s principal (Mr D) had a meeting where they agreed orally to extend the day of repayment of the loan by two years from 1 January 2018 to 1 January 2020, which was subsequently confirmed orally in another meeting between Mr E, Mr D and others. P argued that there was an agreement or estoppel to this effect, and that the loan was therefore not due. D argued that no extension was ever agreed between Mr D and Mr E.

Mr E and Mr D submitted witness statements in the arbitration and were both cross-examined at the hearing. P alleged that D’s counsel did not cross-examine Mr E on the subject of the meetings at which the agreement was alleged to have been reached.

The award

The tribunal considered the evidence of Mr D and Mr E and held that P had succeeded in showing there was an estoppel, but only until 1 January 2018. P had failed to show that the parties had agreed to an extension from 1 January 2018 to 1 January 2020 or that D was estopped from demanding repayment of the loan after 1 January 2018.

P made a request for clarification on this aspect of the tribunal’s award. The tribunal’s clarification noted that, in its view, there was a shared assumption between the parties that the extension would be agreed into a “wider package”, but until all the elements of the wider package were agreed, that shared understanding would have no legal consequences and would not be binding.

Challenge to the award and the court’s decision
 
The first ground: cross-examination of Mr E

P challenged the award on the basis of s68(2)(a) of the Act, arguing that the tribunal had breached their duty under s33 of the Act to act fairly and impartially as between the parties, and to give each party a reasonable opportunity of putting their case and dealing with that of their opponent. P argued that Mr E was not cross-examined by D’s counsel regarding what was said at the meetings, and yet the tribunal found that there was no agreement or estoppel in relation to the matters discussed at the meeting.  This was said to be contrary to the tribunal’s duty under s33.

In their award, the tribunal noted that Mr E was not cross-examined at all on his version of events at the meetings. On the other hand, the tribunal found that Mr D was not a satisfactory witness; Mr D could not recall the meetings at all, and Mr D’s lawyers had prepared his witness statement based upon documents in their possession. The Tribunal “focused on Mr E’s evidence of the meeting“, despite the decision by D’s counsel not to put D’s case regarding the meeting to Mr E.

P argued, relying on Browne v Dunn [1894] 6 R 57, that where there is a challenge to a witness on a core issue as to credibility, it ought to be put in cross-examination to that witness and if this is not done the party not challenging may be precluded from relying on its case on that point. The court found that the principle in Browne was applicable. While modern authorities recognised exceptions to the principle, those exceptions did not apply as the failure to cross-examine was in relation to a core issue. The court also noted that fairness to a witness required that if their evidence was to be disbelieved, they must be given a fair opportunity to deal with the allegation, particularly where serious imputations as to the witness’s honesty and integrity were being made.

The second ground: tribunal’s reasoning

P’s second ground of challenge was that the tribunal based their decision on a case which had not been properly argued. As noted above, the tribunal had provided further clarification that it took the view that there was a common assumption that an extension would be agreed, but that this was contingent on agreeing the wider elements of the transaction. P argued, and the court agreed, that this was not a case that D had pursued in the arbitration. The court also noted that neither P nor its witness Mr E had the opportunity to address this argument.

The court found that there was a breach of the tribunal’s duty under s33 in relation to both of these grounds.

Comment

The decision in P v D is a rare example of a successful challenge to an arbitral award.  The case is instructive of the court’s approach to due process and fairness as regards cross-examination. In international arbitration, tribunals are often guided by the IBA Rules on the Taking of Evidence in International Arbitration (the “IBA Rules”). The IBA Rules give the tribunal broad discretion regarding witness evidence, including allowing the parties not to require the appearance of a witness at a hearing. However, this decision is an important reminder that the court will consider whether fairness to the witness, or to the parties, demands that certain matters be put to a witness in cross-examination.

As the court acknowledged, the tribunal was left in a difficult position in this case. During Mr E’s cross-examination, the chairman of the tribunal indicated to D’s counsel that he had not put the core issue to Mr E; yet D’s counsel nevertheless decided not to cross-examine Mr E on the issue. On the other hand, the evidence of Mr D was, in the judge’s words, “poor to the extent of non-existent“.  The consequence was that a key issue in the case, and on which the tribunal based its award, was not put to Mr E.  On one view the tribunal was left in a difficult position where, despite drawing the parties’ attention to the matter, the core issue was not put to Mr E and it had to make its decision based on the evidence before it.  However, the court’s decision makes clear that where there has been a failure to put to a witness a key issue relating to their credibility, it would be unfair to allow a party who did not so cross-examine to rely on its case on that point.  Where this leads to substantial injustice, the court may exercise its power to set aside the award.

For more information, please contact Craig Tevendale, Partner, Nihal Joseph, Associate (India), Rebecca Warder, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.

Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445
Nihal Joseph
Nihal Joseph
Associate (India)
+44 20 7466 2212

Rebecca Warder
Rebecca Warder
Professional Support Lawyer
+44 20 7466 3418