K1 (a company incorporated in Kuwait) & Ors v B

A challenge under section 68(2)(g) of the Arbitration Act 1996 concerns serious irregularity affecting the tribunal, the arbitral proceedings or the award. It is not a route for reconsidering the merits or correcting an allegedly wrong decision.

The focus is on the conduct of the parties and the process by which the award was obtained. An award may exceptionally be contrary to public policy where the arbitration agreement was part of an overall fraudulent enterprise designed to procure an award. Alleged illegality in the underlying contract, without procedural interference or a fraud directed to obtaining the award, is insufficient. Enforcement issues arise separately and were not determined.

An LCIA tribunal awarded approximately US$3.2 million to B under a letter of engagement. K1, K2 and D had already brought a jurisdictional challenge under section 67 of the Arbitration Act 1996.

They applied to amend that challenge to allege serious irregularity under section 68(2)(g), asserting that the underlying contract was a contract for fraud and that the award was contrary to public policy. The allegation had not been raised in the arbitration, and the proposed amendment was made almost one year after the award.

The central issue was whether the alleged illegality of the underlying contract could found a section 68(2)(g) challenge, and whether permission to amend and an extension of time should be granted.

1. The application was dismissed. Permission to amend the arbitration claim to add a section 68(2)(g) challenge was refused. The applications for an extension of time and relief from sanctions consequently failed.
2. Section 68 is concerned with serious irregularity affecting the tribunal, the arbitral proceedings or the award. Its focus is the parties’ conduct in the arbitration and the process by which the award was obtained. It is not directed to the underlying claim or cause of action.
3. The proposed case was, in substance, that the tribunal had reached the wrong result because it should not have awarded the success fee under an allegedly illegal contract. Section 68 contains no jurisdiction to correct a failure to reach the legally correct decision. The court relied on Lesotho Highlands Development Authority v Impregilo SpA and others and R v V.
4. An award may itself be contrary to public policy where the contract was an early step in an overall fraudulent enterprise whose object was to procure an award or settlement. That was materially different from alleging that the contract was illegal, while accepting that the defendant had not necessarily entered into the enterprise to procure the award. The present case therefore did not fall within that exceptional category.
5. The examples in Nigeria v Process & Industrial Developments Limited involved conduct directed to the arbitration process, including reliance on known false evidence, bribery to suppress relevant information, and improper retention of privileged documents. No comparable conduct was alleged here.
6. Enforcement was a separate question. The court did not determine whether the award should be enforced, although it doubted that enforcement would be required if enforcement were contrary to public policy.