SCM Financial Overseas Ltd v Raga Establishment Ltd (Rev 1)

A section 68 challenge to an arbitral award requires both a breach of the tribunal’s section 33 duty and substantial injustice. Procedural fairness is assessed at the date of the award, not with hindsight from later events. A tribunal’s refusal to defer an award while related foreign proceedings are pending can amount to an irregularity, but the question depends on all the circumstances, including the significance and availability of further evidence, delay and prejudice. A foreign judgment may be important evidence without being binding or determinative. The high threshold for intervention was not crossed because the tribunal’s decision fell within its procedural discretion.

SCM challenged a partial final award made in London-seated LCIA arbitration under section 68 of the Arbitration Act 1996. The arbitration concerned Raga’s claim for unpaid instalments under a share purchase agreement and SCM’s defence and counterclaim, which depended in part on whether Ukrtelecom shares might be confiscated following breaches of obligations in a Ukrainian privatisation agreement.

During the arbitration, the Ukrainian State Property Fund commenced proceedings against ESU seeking rescission of the privatisation agreement and return of the shares. The tribunal declined to defer its award pending those proceedings and ruled for Raga. The Ukrainian courts subsequently ordered rescission and return of the shares. The central issues were whether the refusal to defer breached section 33 and, if so, caused substantial injustice.

1. Challenge dismissed. The tribunal’s refusal to defer the award did not constitute a serious irregularity under section 68.
2. Sections 33 and 68 impose mandatory due-process duties, but section 68 has a high threshold. It is concerned with procedural fairness, not whether the tribunal reached the correct legal or factual conclusion. The court’s task is to assess the tribunal’s conduct and the fairness of the procedure.
3. The question whether there was a section 33 breach had to be decided as at the date of the award. The later success of the Ukrainian State Property Fund’s proceedings was relevant only to substantial injustice, not to whether the tribunal had acted irregularly. The tribunal was entitled to regard a future Ukrainian judgment as potentially important evidence, while retaining the ability to reach its own conclusions on foreign law and fact.
4. A decision not to defer an award pending further evidence is capable of amounting to a section 33 breach. Relevant circumstances ordinarily include the nature and significance of the evidence, the likelihood of its becoming available, the length of the resulting delay, and prejudice to the party resisting deferral. These matters must be assessed at the award date, having regard to the tribunal’s wide procedural discretion under section 34.
5. The tribunal was entitled to proceed on the basis that deferral might produce uncertainty over an indeterminate period. It was also entitled to balance SCM’s potential prejudice against Raga’s prejudice from delay and enforcement risk. The possibility of inconsistent decisions is an inherent risk of arbitration and did not, by itself, establish substantial injustice.
6. Although the later Ukrainian decisions might well have led to a different result, that conclusion was hypothetical because no section 33 breach had been established. Accordingly the substantial-injustice issue did not arise.