Shot Down: A Major Arbitration Award Defeated (For Now?)

It is not often that a commercial arbitration gives rise to a big news story and becomes a political hot potato. For that reason alone, the two judgments which have been made to date in Secretary of State for the Home Office v Raytheon Systems Limited [2014] EWHC 4375 (TCC) and [2015] EWHC 311 (TCC) would make for interesting reading. But the case is also unusual in other ways.

Raytheon (best known as a manufacturer of missiles, though in this case supplying an IT system) obtained a nine-figure arbitration award against the British Government after a long, expensive arbitration process, only to then have the award completely set aside by the court, with the case now required to be reheard by an entirely new tribunal, unless Raytheon succeeds in its appeal.

Section 68(2)(d)

It is fundamental that parties should be free to agree how their disputes are resolved "subject only to such safeguards as are necessary in the public interest" (Section 1(b) of the Arbitration Act 1996). One such "safeguard" is the right of a party to challenge an award on the grounds of "serious irregularity affecting the tribunal, the proceedings or the award ...". So far as relevant, section 68 provides:

"68 Challenging the award: serious irregularity.

(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award. ...

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant -"

There follows a list of categories of serious irregularity. These are not just examples of serious irregularity. To succeed in a challenge under section 68 the case must actually fit within one of the listed categories. The relevant category in the Raytheon case was:

"(d) failure by the tribunal to deal with all the issues that were put to it;

...

(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may—

(a) remit the award to the tribunal, in whole or in part, for reconsideration,

(b) set the award aside in whole or in part, or

(c) declare the award to be of no effect, in whole or in part.

The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.

(4) The leave of the court is required for any appeal from a decision of the court under this section."

In the first of the Raytheon judgments, the law and practice in relation to section 68 was summarised as follows (references to authorities omitted):

"(a) Section 68 reflects "the internationally accepted view that the Court should be able to correct serious failures to comply with the "due process" of arbitral proceedings: cf art 34 of the Model Law." ...; relief under Section 68 will be appropriate only where the tribunal has gone so wrong in the conduct of the arbitration that "justice calls out for it to be corrected" ...

(b) The test will not be applied by reference to what would have happened if the matter had been litigated ...

(c) The serious irregularity requirement sets a "high threshold" and the requirement that the serious irregularity has caused or will cause substantial injustice to the applicant is designed to eliminate technical and unmeritorious challenges ...

(d) The focus of the enquiry under Section 68 is due process and not the correctness of the Tribunal's decision ...

(e) Section 68 should not be used to circumvent the prohibition or limitations on appeals on law or of appeals on points of fact ...

(f) Whilst arbitrators should deal at least concisely with all essential issues ..., courts should strive to uphold arbitration awards ... and should not approach awards with a meticulous legal eye endeavouring to pick holes, inconsistencies and faults on awards with the objective of upsetting or frustrating the process of arbitration".

...

(h) In relation to the requirement for substantial injustice to have arisen, this is to eliminate technical and unmeritorious challenges ... It is inherently likely that substantial injustice would have occurred if the tribunal has failed to deal with essential issues ...

(i) For the purposes of meeting the "substantial injustice" test, an applicant need not show that it would have succeeded on the issue with which the tribunal failed to deal or that the tribunal would have reached a conclusion favourable to him; it necessary only for him to show that (i) his position was "reasonably arguable", and (ii) had the tribunal found in his favour, the tribunal might well have reached a different conclusion in its award ...

[j] The substantial injustice requirement will not be met in the event that, even if the applicant had succeeded on the issue with which the tribunal failed to deal, the Court is satisfied that the result of the arbitration would have been the same by reason of other of the tribunal's findings not the subject of the challenge.

A useful summary of the law and practice with respect to Section 68(2)(d) specifically also appears in the first Raytheon judgment (references to authorities omitted):

"(i) There must be a "failure by the tribunal to deal" with all of the "issues" that were "put" to it.

(ii) There is a distinction to be drawn between "issues" on the one hand and "arguments", "points", "lines of reasoning" or "steps" in an argument, although it can be difficult to decide quite where the line demarking issues from arguments falls. However, the authorities demonstrate a consistent concern that this question is approached so as to maintain a "high threshold" that has been said to be required for establishing a serious irregularity.

(iii) While there is no expressed statutory requirement that the Section 68(2)(d) issue must be "essential", "key" or "crucial", a matter will constitute an "issue" where the whole of the applicant's claim could have depended upon how it was resolved, such that "fairness demanded" that the question be dealt with ...

(iv) However, there will be a failure to deal with an "issue" where the determination of that "issue" is essential to the decision reached in the award ... An essential issue arises in this context where the decision cannot be justified as a particular key issue has not been decided which is critical to the result and there has not been a decision on all the issues necessary to resolve the dispute or disputes ...

(v) The issue must have been put to the tribunal as an issue and in the same terms as is complained about in the Section 68(2) application ...

(vi) If the tribunal has dealt with the issue in any way, Section 68(2)(d) is inapplicable and that is the end of the enquiry ... it does not matter for the purposes of Section 68(2)(d) that the tribunal has dealt with it well, badly or indifferently.

(vii) It matters not that the tribunal might have done things differently or expressed its conclusions on the essential issues at greater length ...

(viii) A failure to provide any or any sufficient reasons for the decision is not the same as failing to deal with an issue ... A failure by a tribunal to set out each step by which they reach its conclusion or deal with each point made by a party is not a failure to deal with an issue that was put to it ...

(ix) There is not a failure to deal with an issue where arbitrators have misdirected themselves on the facts or drew from the primary facts unjustified inferences ... The fact that the reasoning is wrong does not as such ground a complaint under Section 68(2)(d) ...

(x) A tribunal does not fail to deal with issues if it does not answer every question that qualifies as an "issue". It can "deal with" an issue where that issue does not arise in view of its decisions on the facts or its legal conclusions. A tribunal may deal with an issue by so deciding a logically anterior point such that the other issue does not arise ... If the tribunal decides all those issues put to it that were essential to be dealt with for the tribunal to come fairly to its decision on the dispute or disputes between the parties, it will have dealt with all the issues ...

(xi) It is up to the tribunal how to structure an award and how to address the essential issues; if the issue does not arise because of the route the tribunal has followed for the purposes of arriving at its conclusion, Section 68(2)(d) will not be engaged. However, if the issue does arise by virtue of the route the Tribunal has followed for the purposes of arriving at its conclusion, Section 68(2)(d) will be engaged.

(xii) Whether there has been a failure by the tribunal to deal with an essential issue involves a matter of a fair, commercial and commonsense reading (as opposed to a hypercritical or excessively syntactical reading) of the award in question in the factual context of what was argued or put to the tribunal by the parties (and where appropriate the evidence) ... The Court can consider the pleadings and the written and oral submissions of the parties to the tribunal in this regard."

The Agreement for the provision of e-Borders

Most people will have heard of the "e-Borders" programme (one could be forgiven for thinking it was properly called "the disastrous e-Borders programme", since this is how it is generally referred to in the media).

The British government wished to collect, store and analyse information on all travellers entering or leaving the UK, whether by air, sea or rail. For this purpose, the Immigration, Asylum and Nationality Act 2006 created powers for the UK Border Agency ("UKBA") and police to require data from carriers in advance of movements into or out of the UK.

To allow the rapid collection, storage and analysis of information obtained under...