The Commercial Court has rejected an attempt to challenge an LCIA award on grounds of serious irregularity under section 68(2)(a) of the Arbitration Act 1996: Livian GmbH v Elektra Ltd and another  EWHC 757 (Comm). The Court held that the contention that the Tribunal had overlooked undisputed witness testimony could not form the basis of an allegation of serious irregularity and, in any event, the Claimant had failed to demonstrate that evidence was overlooked or that any alleged omission would have had a significant impact on the outcome.
This judgment is another example of the robustness of the English Courts when faced with challenges to arbitral awards and their continued deference to tribunal decision-making.
The parties were developers and manufacturers of healthcare electronic equipment. In October 2011, the parties entered into a German-law governed agreement pursuant to which the Defendant was granted rights to develop, market and distribute the Claimant’s Product.
A dispute arose between the parties which concerned an allegation that the Defendant had failed to promote, market and sell the Product in compliance with its contractual obligations. In accordance with the Agreement, the dispute was referred to LCIA arbitration proceedings.
The dispute before the Tribunal turned upon the construction of the contract. Under German law, it is necessary to have regard to the content of pre-contractual negotiations and the subjective intentions of the parties. The Tribunal (at its own insistence) questioned one of the Defendant’s employees (Mr Prosser) who had been engaged in the contractual negotiations. Mr Prosser’s evidence was contrary to the Claimant’s construction of the Agreement. The Tribunal decided the issue against the Claimant but did not refer to any of Mr Prosser’s evidence in its Award.
The Claimant brought a challenge to the Award under section 68(2)(a) of the Arbitration Act 1996 on the sole basis that “… ignoring and/or overlooking the undisputed evidence of its own witness, the Tribunal committed a serious irregularity which affected the Final Award and caused substantial injustice to the Claimant”.
Judge Pelling QC rejected the Claimant’s application and reaffirmed that a s68 challenge will only be allowed in exceptional cases.
The first question the Court considered was whether the Claimant had demonstrated that the Tribunal had failed to act fairly and impartially between the parties by ignoring and/or overlooking the undisputed evidence of Mr Prosser. Judge Pelling QC referred to UMS Holding Limited and others v. Great Station Properties SA  EWHC 2398 (Comm) and determined that Teare J had correctly summarised the law in stating at paragraph 28 that “[a] contention that the tribunal has ignored or failed to have regard to evidence relied upon by one of the parties cannot be the subject matter of an allegation of a serious irregularity within section 68(2)(a)“. The Judge reiterated the many reasons for this, including that the Tribunal did not have to deal in its reasons with all relevant evidence and that it is not possible or permissible for the Court to consider all the evidence before the Tribunal and infer the reason for the failure to mention certain evidence.
Judge Pelling QC proceeded to consider the challenge in the event that the judgment of Teare J should not be followed and that in principle a s.68 challenge based on a breach of the s.33 duty could be made out where a claimant shows that arbitrator has genuinely overlooked evidence. He determined the Claimant had not demonstrated this to be the case.
- First, Judge Pelling QC found that the Tribunal had adopted “an entirely legitimate approach to contractual construction applying German law and the contrary was not or could not be argued” and the Tribunal “was fully entitled to reach that conclusion for the reasons the Tribunal identified” and “not to refer to the evidence of Mr Prosser because nothing Mr Prosser said contradicted the conclusion reached by the Tribunal or its reasons for reaching that conclusion“. The Judge did not accept that the Claimant had shown that it should be inferred that the Tribunal overlooked the evidence of Mr Prosser. Further, the fact that the Tribunal had referred on a number of occasions to correspondence from or to Mr Prosser made it “inherently improbable” that his oral evidence had been overlooked.
- Second, in any event, the Court found that even if the evidence had been overlooked, there was no basis for concluding, in the circumstances of this case, that such a failure would give rise to a serious irregularity. The Judge emphasised in this regard that the serious irregularity test is “designed to limit the circumstances in which a court can intervene to extreme cases where the tribunal has gone so wrong in its conduct that justice calls out for it to be corrected“.
- Finally, Judge Pelling QC determined that the Claimant had failed to demonstrate that the Tribunal would have reached a different view and produced a significantly different outcome by reference to Mr Prosser’s evidence – there was nothing in his evidence that supported the Claimant’s case or contradicted the Tribunal’s conclusions.
This decision represents the latest example of the robust approach of the English Court when faced with challenges to arbitral awards. The judgment emphasises the high threshold for establishing a successful s68 challenge, reiterating that “[failure] to have regard to evidence relied upon by one of the parties cannot be the subject matter of an allegation of a serious irregularity” and that the serious irregularity test is designed to limit court intervention to “extreme cases where the tribunal has gone so wrong in its conduct that justice calls out for it to be corrected“.
Parties seeking to lodge a s.68 challenge should carefully consider not just the existence and scope of any alleged irregularity but also the materiality of the alleged irregularity to the Tribunal’s decision.
For more information, please contact Chris Parker QC, Partner, Jake Savile-Tucker, Associate, or your usual Herbert Smith Freehills contact.