F Ltd. v M Ltd.

An application under section 68 of the Arbitration Act 1996 requires both serious irregularity and substantial injustice. A tribunal may reject a claim on the true construction of the contractual provision relied upon, even if the opposing party did not advance that construction. It need not identify alternative unpleaded routes of recovery for the claimant. However, a tribunal acts irregularly where it decides an unpleaded and unargued basis for awarding a substantial sum against a party, particularly where its reasoning rests on a mistake of fact. The court should remit only the affected issue, and may remit consequential costs issues where the award may materially change.

The claimant sought remission under section 68 of the Arbitration Act 1996 of parts of an ICC arbitration award concerning a consortium agreement for a flue gas desulphurisation plant. It challenged the rejection of a claim arising from a negotiated reduction in the customer’s contract price, the deduction of £973,344 in favour of the defendant, and the consequential costs allocation. The arbitration tribunal had reached those conclusions by a majority, with one arbitrator dissenting. The central questions were whether the tribunal had decided issues without giving the parties an opportunity to address them, exceeded its powers, or caused substantial injustice.

1. The application was allowed in part. The award was not remitted in relation to the three-pump settlement claim, but the issue of the £973,344 deduction was remitted. The costs allocation was also remitted for reconsideration after that issue was resolved.

2. Section 68 imposes a high threshold. The applicant must establish a serious irregularity of a statutory kind and substantial injustice. The underlying principle is procedural fairness, balanced against the finality and autonomy of arbitration. A tribunal generally determines the dispute on the cases advanced and notified by the parties.

3. The claimant had pleaded its three-pump claim solely under clause 27.3. The tribunal was entitled to construe that provision and conclude unanimously that the claimed payment was not recoverable as defined “Cost”. The claimant could not obtain remission merely because the tribunal had not invited submissions on a construction which defeated the pleaded claim. Nor was the tribunal required to search the agreement for an alternative unpleaded claim under clause 30.2. The alternative damages route likewise did not justify remission, since the contractual provisions constituted a complete code and any procedural error would not have caused substantial injustice.

4. The tribunal’s treatment of the £973,344 deduction was materially different. The defendant had not pleaded or argued an unqualified entitlement to that sum regardless of the outcome of its counterclaim. The tribunal nevertheless treated the claimant’s pleadings as an admission that the money was due, despite its other findings and despite stating that the sum had nothing to do with Claim 4. That was a novel, unargued basis for decision, involved a serious irregularity under section 68(2)(a), and was outside the tribunal’s powers under section 68(2)(b). The potential reduction of the claimant’s recovery by almost £1 million established substantial injustice.

5. The issue of the deduction was therefore remitted for reconsideration, without conditions. Because the costs award depended on the claimant’s overall recovery, the costs issue was remitted correspondingly. The claimant also obtained costs protection under CPR 36.14(3), together with an interim payment of £25,000 on account.