The Secretary of State for the Home Department v Raytheon Systems Ltd

Section 68(2)(d) of the Arbitration Act 1996 addresses serious procedural failures, not whether an arbitral tribunal reached the correct legal or factual result. The applicant must identify an issue, rather than an argument or reasoning step, which was put to the tribunal, was essential to the result, and was not dealt with. The high threshold and substantial-injustice requirement exclude technical challenges. A tribunal may choose a route that makes another issue unnecessary, but it must address an issue that remains material on the route it adopts. Here, the tribunal failed to consider the contractor’s responsibility for delay when assessing termination and a global cost-based restitution claim. Those omissions could have affected the result and justified a finding of serious irregularity.

A government department engaged a technology contractor under a high-value agreement to design, develop and deliver technology systems. The department purported to terminate the agreement for cause. In a confidential arbitration, the tribunal found the termination unlawful, treated it as a repudiation accepted by the contractor, and awarded substantial damages, including approximately £126 million for transferred assets.

The department applied under section 68(2)(d) of the Arbitration Act 1996, alleging that the tribunal had failed to deal with two liability issues and three quantum issues. The central questions were whether the tribunal had to determine responsibility for delay and whether it had to address contractor-caused delay, disruption and inefficiency when valuing the transferred assets on a global cost basis.

The court found serious irregularity under section 68(2)(d) of the Arbitration Act 1996 on two grounds, while rejecting three others. Relief, costs and the precise consequences were reserved for a further hearing.

1. The statutory ground has a high threshold. It concerns due process rather than the correctness of the tribunal’s decision. The principles in Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43, Sonatrach v Statoil Natural Gas [2014] 2 Lloyd's Rep 252 and related authorities required a fair, commercial reading of the award. Errors of law or fact, inadequate elaboration of reasons, or failure to set out every reasoning step do not, by themselves, establish a failure to deal with an issue.
2. Liability Ground 1 failed. The tribunal was entitled to decide first whether the contractual Process Requirements for termination were conditions precedent and whether they had been satisfied. Its approach meant that it did not need to determine the contractual consequences of allegedly late notices under the delay provisions. Although that approach might have been legally wrong, it was not a failure to deal with an issue under section 68(2)(d).
3. Liability Ground 2 succeeded. The tribunal considered whether the department had caused or contributed to delay, but did not address the reasonably arguable case that the contractor was wholly or substantially responsible for it. That omitted scenario might have affected the tribunal’s key findings on compliance with the Process Requirements and could have led to a different outcome. Substantial injustice was therefore established.
4. Quantum Challenge 1 failed. The tribunal had expressly reasoned that the accepted repudiation released the contractor from further performance, including the Exit Management provisions, and that the transferred-assets claim could therefore be pursued in unjust enrichment rather than under the contractual valuation mechanism. Whether that reasoning was correct was not a section 68(2)(d) question.
5. Quantum Challenge 2 failed. The tribunal addressed the contractual-value argument by explaining that the evidence was unsatisfactory and adopting a cost-based valuation less payments received. Any error in that approach was an error of law or fact, not an omission to deal with an issue.
6. Quantum Challenge 3 succeeded. The pleadings and evidence raised a material issue whether a global cost-based valuation included costs caused by the contractor’s own delay, disruption or inefficiency. The tribunal failed to address that issue at all. The omission was essential to the approximately £126 million award and caused substantial injustice.