L v R

A challenge under section 68 of the Arbitration Act 1996 is a high-threshold, long-stop remedy for extreme procedural failures. Substantial injustice requires proof that, absent the irregularity, the tribunal might well have reached a different conclusion and that the alternative conclusion is reasonably arguable. An arbitral tribunal may make a money award where the parties’ correspondence and final submissions, viewed objectively, show that the claim was to be finally determined and no agreement for declaratory relief remained. A final award determining the claim leaves no further proceedings in the reference against which an unadjudicated set-off can operate. In any event, substantial injustice is absent where the proposed set-off is not shown to be reasonably arguable.

L applied under section 68 of the Arbitration Act 1996 to set aside an arbitration award concerning charterparty claims. The tribunal awarded R US$480,283.33 for demurrage, dismissed R’s other claims and purported to prohibit L from advancing certain set-offs, including the Ormos Claim. L argued that the parties had agreed, or reasonably understood, that the tribunal would make only a declaratory award and would leave the Ormos Claim for later determination. R accepted that the prohibition was irregular but disputed any resulting injustice. The issues were whether the award involved a serious irregularity and, if so, whether it caused substantial injustice.

1. Application dismissed. The threshold under section 68 was high. The provision was a long-stop remedy for extreme cases in which the arbitral process had gone seriously wrong. Substantial injustice required L to show that, absent the irregularity, the tribunal might well have reached a different conclusion and that that conclusion was at least reasonably arguable.

2. There was no serious irregularity in making a money award. Although the parties had initially contemplated a declaratory award, the tribunal’s order of 25 January 2010 made clear that the claim and set-offs were to be finally determined. L ultimately identified only a dispatch claim that it was prepared to prove. The later submissions advanced and answered a money claim, including interest, and did not maintain that only declaratory relief was permissible. Objectively viewed, there was no continuing agreement or mutual understanding requiring a declaratory award.

3. The tribunal was entitled to proceed in accordance with its own order. It was not required to trawl through earlier correspondence to discover proposals displaced by the subsequent procedural orders and conduct of the parties.

4. Even if the form of the award had been irregular, L failed to establish substantial injustice. The Ormos Claim had been pleaded only in general terms. The material relied upon did not identify an evidential basis or particular provision of Indian law showing that R’s conduct was unlawful. After seven years, the claim was not shown to be reasonably arguable.

5. The tribunal’s purported prohibition on later reliance upon the Ormos Claim was, at most, immaterial. The final award had determined R’s demurrage claim and dismissed R’s other claims. The tribunal was therefore functus in relation to the reference, and there was no remaining claim against which the Ormos Claim could operate as a set-off. The application accordingly failed on both grounds.