RJ & Anor v HB

An arbitral tribunal may determine issues beyond the parties’ competing cases, but fairness requires notice and a proper opportunity to address any materially different basis of decision. Failure to provide that opportunity is a serious irregularity under section 68 of the Arbitration Act 1996 where substantial injustice results or will result. The usual remedy is remission. Setting aside is appropriate where the irregularity has infected the dispositive relief and related reasoning so extensively that the relief must be reconsidered afresh. Setting aside does not itself justify removing the arbitrator. Removal is a separate matter under section 24.

HB obtained an ICC arbitration award arising from an investment and proposed banking transaction with RJ and L Ltd. The arbitrator found RJ and L Ltd in breach, but instead of granting the relief sought by HB, declared RJ to be the beneficial owner of shares in Bank 2 purchased with the investment funds.

RJ and L Ltd challenged that declaration under section 68 of the Arbitration Act 1996, arguing that the beneficial-ownership analysis had not been raised and that they had not been given a fair opportunity to address it. They also sought setting aside rather than remission and argued that a new arbitrator should be appointed.

1. The claim under section 68 succeeded in relation to Award #3 and associated reasoning. An arbitrator is not confined to choosing between the parties’ submissions, but section 33 fairness requires notice and a proper opportunity to respond if the arbitrator is considering a materially different basis of disposal.

2. The irregularity caused substantial injustice. RJ had been declared beneficial owner of a substantial shareholding which he did not wish to own, lacked necessary regulatory approval, faced potential regulatory consequences, and might be said to have no entitlement to repayment of the US$75 million.

3. Although section 68(3) makes remission the default remedy, setting aside was appropriate because the dispositive relief and the reasoning leading to it had become substantially overlaid by the procedurally irregular approach. Award #3, Award #6 and the specified affected reasoning in the Final Award and Addenda were set aside or left for further directions.

4. Setting aside did not justify removing the arbitrator. The Addenda did not establish that he would be unable to approach the question of relief afresh with an open mind. The court’s view was that section 68 does not empower removal; removal is reserved to section 24. The arbitrator was therefore to resume the arbitration.