Gracie & Anor v Rose

A challenge to an arbitral award under section 68 of the Arbitration Act 1996 is confined to serious procedural irregularity and is not an indirect appeal on the merits. A failure to deal with an issue requires the tribunal to have overlooked an essential or key issue required for a fair decision. The applicant must also show that the irregularity caused, or may cause, substantial injustice, ordinarily by showing that the result might well have been different. Where an award is ambiguous or insufficiently clear, available recourse under section 57 must first be exhausted before a court challenge is brought. An erroneous exercise of a power conferred on the tribunal does not amount to exceeding its powers under section 68(2)(b).

The claimants challenged an arbitration award concerning the valuation of shares in a company and the defendant’s entitlement to distributions. The claim was brought under sections 68 and 69 of the Arbitration Act 1996; the proposed section 69 appeal concerning reflective loss was abandoned, leaving three section 68 grounds.

The claimants alleged that the arbitrator had failed to deal with a rectification issue, had failed to deal properly with the classification of payments as dividends or drawings, and had improperly determined issues of quantum which were said to have been deferred. The central questions were whether the alleged procedural irregularities fell within section 68 and whether any had caused substantial injustice.

1. The claim was dismissed. The court’s supervisory jurisdiction under section 68 of the Arbitration Act 1996 is a restricted, long-stop jurisdiction. It does not permit an indirect appeal against the arbitrator’s conclusions or reasoning.
2. For section 68(2)(d), the relevant failure is failure to deal with an essential or key issue which had to be addressed for a fair decision. The arbitrator need not deal with every point made in argument. An issue may also fall away because of other findings. A challenge additionally requires substantial injustice, namely that the result might well have been different.
3. On Ground 1, the award’s reference to calculation of goodwill with no modification was ambiguous as to whether it rejected both variation and rectification. The claimants had not established a failure to deal with the rectification issue. In any event, the challenge was barred by section 70(2), because clarification should first have been sought under section 57(3)(a).
4. On Ground 2, the arbitrator had dealt with the dividends issue. His rejection of evidence that the payments were drawings was an exercise of his decision-making power, not an excess of power under section 68(2)(b). An alleged error in exercising an available power cannot found that ground.
5. On Ground 3, the arbitrator’s proposal to defer quantum related only to the abandoned reflective-loss counterclaim. The parties understood that valuation of the shares and distributions would be determined in the existing reference. No substantial injustice was established.