K & Ors v P & Ors

A challenge under Arbitration Act 1996, section 68, addresses procedural unfairness and substantial injustice, not errors of law or fact. A tribunal need determine the fundamental issues essential to resolving the claims or defences, but need not address every argument or step in the reasoning. Serious irregularity may arise where a party is deprived of a fair opportunity to meet a new case, particularly where the tribunal decides an unargued issue capable of affecting the result. Where the party knew of the evidential case and chose to answer it without seeking exclusion or further evidence, procedural unfairness will not ordinarily be established. The appropriate remedy for a serious irregularity causing substantial injustice is remission to the tribunal.

The Buyers challenged an LCIA arbitration award under section 68 of the Arbitration Act 1996. The dispute arose from a share purchase agreement concerning agricultural companies and included claims relating to qualifying land leases, warranties, indemnities, a silo and undisclosed debts.

The Buyers alleged that the tribunal admitted and accepted a late unpleaded case, failed to determine material issues, and decided issues without giving them an opportunity to respond. The court considered four groups of complaints: qualifying land leases; warranty and indemnity claims; the Yarmolintsi Silo; and net debt.

1. The application succeeded in part. The court rejected the challenge concerning qualifying land leases, but found serious irregularity causing substantial injustice in relation to payment out under the warranties and indemnities, the Yarmolintsi Silo, and net debt. The Award was remitted to the existing tribunal for reconsideration of those matters.

2. Section 68 of the Arbitration Act 1996 is directed to procedural unfairness, not mistakes of law or fact. The court intervenes only in an extreme case, where the tribunal has departed substantially from the standards reasonably expected of arbitration and the irregularity may have affected the result. A generous margin of appreciation is allowed.

3. For section 68(2)(d), an issue is a fundamental matter requiring determination for a fair decision on the claims or defences. The tribunal need not deal expressly with every argument, evidential point or step in the reasoning. In the qualifying-land-leases dispute, the Buyers knew the accounts were being relied upon, addressed the case in evidence and submissions, and did not seek exclusion, further factual evidence or expert evidence. The tribunal’s failure to answer every submission was therefore not a failure to deal with an issue.

4. The tribunal did fail to determine whether payment of the purchase price under the MSPA could satisfy the contractual requirement that loss be actually incurred and paid out. That was a distinct and potentially decisive issue, not merely an argument concerning the measure of loss, and its omission constituted serious irregularity and substantial injustice.

5. The Sellers introduced a new argument on the Silo in written closing submissions, contrary to the parties’ previous common ground, without giving the Buyers an opportunity to respond or obtain valuation evidence. Accepting that argument amounted to procedural unfairness. The tribunal also had to determine the effect of the payment-out issue.

6. The tribunal decided that warranty claims for undisclosed debts could only proceed through the net-debt adjustment mechanism, although that had not been the Sellers’ case and contradicted the agreed position. The Buyers had no opportunity to address the point, so remission was required.

7. No waiver arose under section 73 because the Buyers could not know of these failures until the Award was issued. The court provisionally directed that the Sellers pay 60 per cent of the Buyers’ costs, subject to agreement or detailed assessment.

The judgment describes an LCIA arbitration culminating in an Award dated 27 February 2018. This was a first-instance challenge under section 68 of the Arbitration Act 1996; no lower court judgment is stated.