See it? Say it. High Court confirms application of s. 73 Arbitration Act 1996 to partial awards

16/05/23

A party to arbitral proceedings who fails to make a timely objection to a partial award but instead continues to participate in the subsequent phase of the proceedings will be barred from subsequently challenging that award, even if it only became aware of its grounds of challenge after the award was issued.

That is the key takeaway from the judgment of Dame Clare Moulder DBE in Radisson Hotels Aps Danmark v Hayat Otel Isletmeciligi Turizm Yatirim Ve Ticaret  Anonim Sirketi, a judgment handed down initially in private on 21 April 2023 and released for publication on 16 May.

The underlying arbitration concerns a claim by Hayat for the mismanagement of a hotel in Istanbul, Turkey. A partial award on liability and causation was issued in Hayat’s favour in March 2021, after which proceedings moved onto the quantum phase. While the quantum phase was ongoing, Radisson held a number of meetings over a period of several months with two former representatives of Hayat: its former deputy general counsel and its former expert consultant in the arbitration, in the course of which it was made aware of allegations of ex parte contact between Hayat’s representatives and one of the Tribunal members. This eventually resulted in Radisson being provided with copies of communications between the expert consultant in question and the Tribunal member. Radisson subsequently issued an application under s. 68 of the Arbitration Act 1996 seeking to have the partial award set aside for bias.

Dame Clare Moulder DBE, sitting as a Judge of the High Court, dismissed the application and upheld the partial award, on the basis that Radisson had continued to participate in the arbitral proceedings without objection after becoming aware of its grounds for challenge and had thereby lost its right to challenge the partial award under s. 73 of the Arbitration Act 1996. Section 73(1) provides that (as here relevant) “If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection…(c) that there has been a failure to comply with the arbitration agreement or with any provision of this Part…he may not raise that objection, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection.”

In finding that Radisson had waived its right to challenge the award, the Judge confirmed that s. 73 applies wherever a party continues to participate in the arbitration without objection after becoming aware of its grounds for challenge. In this respect, she rejected a submission based on dicta in cases involving final awards (in particular, Republic of Nigeria v Process & Industrial Developments Ltd [2020] EWHC 2379 (Comm))  that s. 73 had no application to knowledge or conduct post-dating issue of the award under challenge.

The Judge refused permission to appeal.  In the course of refusing permission to appeal, she also confirmed that the test for knowledge was the same in cases of alleged bias as for other grounds of challenge, rejecting a submission that Article 6 ECHR imposed a higher threshold for a party to waive its right to an impartial tribunal, and that there was no need for the Court to reach a decision on the substantive s. 68 application before applying s. 73.

The judgment offers a number of useful practical reminders to both applicants and respondents in s. 68 challenges, particularly on the basis that s. 73 requires a party who continues to take part in the arbitral proceedings to show that it did not know and could not with reasonable diligence have discovered the grounds for the objection:

• From the applicant’s perspective, it illustrates the need for parties (and their lawyers) to keep proper records of any steps taken to investigate a potential ground for challenge. A party who relies on its conduct in investigating its grounds for challenge to discharge its burden of showing that it did not have or could not with reasonable diligence have obtained  knowledge of its grounds for objection during its continuing participation in the arbitration may find it difficult to maintain privilege in at least some of its records of the investigation, and should therefore be prepared to produce them. Radisson’s failure to produce notes of any of its various meetings with Hayat’s former representatives, as well as the deletion of a number of WhatsApp messages, was an important factor in the Judge’s conclusion that Radisson had failed to discharge its burden under s. 73 of showing that it did not have the relevant knowledge at the time of its ongoing participation.
• From the respondent’s perspective, the case illustrates the importance of applying at an early stage for alternative directions, including disclosure and cross examination in cases where issues arise under s. 73, notwithstanding that the default position in s. 68 challenges is for there to be neither.

The judgment is here.