English Court Sets Aside Arbitration Award For Serious Irregularity Due To Tribunal's Non-Disclosure Of Novel Point Central To Award

The odds of successfully challenging an arbitral award in the English Courts on the basis of s68 of the Arbitration Act 1996 (serious irregularity) remain low. In the recent past over 95% of s68 challenges have been unsuccessful and in the period from 2015 to 2017 only 3 out of 112 s68 appeals succeeded, approximately 2.7% of applications made.

However, the English High Court has recently set aside an arbitral award for serious irregularity under s68(2)(a) in the case of RJ and another v HB [2018] EWHC 2833 (Comm). This case is a relatively rare and interesting example of a successful s68(2)(a) challenge.

Background

The parties to the dispute had entered into various agreements under which, ultimately, HB agreed to transfer shares in a bank to RJ (or an RJ affiliate) in exchange for a Euro sum then equivalent to US$75 million. There was no share transfer and HB alleged that RJ and RJ's corporate vehicle (L Ltd) had failed to take steps to obtain the regulatory approval needed to accept the transfer. As a result, HB brought arbitration proceedings against RJ and L Ltd, seeking to force RJ to (at least) take required steps towards effecting the agreed share transfer.

The sole arbitrator, "a very senior English QC, well known and highly regarded in the world of international commercial arbitration", initially handed down a partial award setting out his first findings, on the basis of which he invited the parties to settle their disputes.

The parties failed to reach a settlement agreement and the arbitrator then made a final award declaring that:

RJ and L Ltd were in breach of the share transfer agreements between the parties. RJ was the beneficial owner of the bank shares HB had purchased. The s68 challenge

RJ and L Ltd applied to the English Court to have the award set aside, on the basis that the decision declaring RJ to be the beneficial owner of the shares was affected by a serious irregularity.

The applicants successfully argued that the order ultimately made, that RJ was the beneficial owner of the shares held by HB, had not been sought by any of the parties to the dispute. The possibility that this was the proper share ownership structure had never been raised by the arbitrator at any stage. As a result the parties were never given an opportunity to consider or to deal with this new point.

There had been three exchanges during oral closing submissions which could be read "as a hint that something like what became [the Award] may have...