English High Court Tackles Serious Irregularity In LCIA Arbitral Award

Challenges to arbitral awards on serious irregularity grounds are rarely pressed and very seldom succeed. The recent English1. High Court judgment in The Secretary of State for the Home Department v Raytheon Systems Limited2. ("First Judgment") is however one such occasion where a challenge, advanced under sections 68(1) and 68(2)(d) of the English Arbitration Act 1996 ("Act"), met with success. Consequent upon that ruling, and in a further judgment3. ("Second Judgment"), the High Court set aside a London Court of International Arbitration ("LCIA") award of approximately £225 million.

Key Aspects

There are two components to these related judgments of most interest.

First is the serious irregularity grounds for challenging arbitral awards pursuant to Section 68 of the Act.4. Section 68 lists various forms of serious irregularities which, individually or cumulatively, potentially provide for grounds of challenge. At first blush, the ambit of those grounds appears to be relatively wide. However, any party seeking to rely upon a Section 68 ground must demonstrate the further threshold ingredient that "substantial injustice" has been, or will be, caused by its occurrence. Although that ingredient was successfully demonstrated in the instant case, Mr Justice Akenhead nonetheless affirmed that the bar is set very high5. and that curial relief will be exercised only where, among other matters, the tribunal has gone so wrong in the conduct of the arbitration that "justice calls for it to be corrected".

Second is the issue of what the appropriate relief ought to be where serious irregularity (causing substantial injustice) is properly established6.—specifically, whether the award should be remitted or set aside and the factors weighing for and against each. In this regard, His Lordship's judgment provides some very useful, and relatively rare, guidance on this issue.

Arbitration Background

In 2007, the Secretary of State for the Home Department ("Home Office") engaged US defence company Raytheon Systems Limited ("Raytheon") to design, develop and deliver a £750 million electronic border control system. However, under a new Government, the Home Office purported to terminate Raytheon's contract in 2010, citing, among other matters, the significant delays suffered to the milestone deliverables.

Raytheon denied that the termination was lawful and, on that basis, pressed substantial damages claims against the Home Office. A London seated LCIA arbitration was commenced by the Home Office, and a tribunal was constituted comprising UK and US wing arbitrators and a Canadian chair.

A 42-day substantive hearing on liability and quantum took place, with...