Serious irregularity in international arbitration

19/04/21

On 19 April 2021, the Judicial Committee of the Privy Council handed down its judgment in RAV Bahamas Ltd & Bimini Bay Resort Management Limited v Therapy Beach Club Incorporated [2021] UKPC 8, a landmark case in law on challenges to arbitral awards.

The appeal concerned a challenge to an award for serious irregularity. It is the first time that the requirement of ‘irregularity causing substantial injustice’ has been considered by a highest appellate court since the decision of the House of Lords in Lesotho Highlands Development Authority v Impregilo SpA [2006] 1 AC 221.

At first instance, the Appellants had challenged an award of damages against them under section 90 of the Bahamas Arbitration Act 2009 (which is materially identical to section 68 of the Arbitration Act 1996), alleging that it was affected by serious irregularity in two respects:

First, they complained that the arbitrator had failed to deal with important issues put to her concerning the period for which damages could be awarded.

Second, they complained that she had failed to give the Appellants a fair opportunity to address certain adjustments she had made to the Respondent’s calculation of damages for consequential losses: (i) to reflect the failure of aspects of its claim, which had previously been presented on a global basis; and (ii) the fact that the evidence of its quantum expert was based on memory and unsupported by documents.

Both complaints succeeded in the Supreme Court of the Bahamas before the Hon Mr Justice Winder. However, by a majority, the Court of Appeal reversed that decision, on the basis that the Appellants had failed separately to allege, and the Hon Mr Justice Winder had failed separately to find, that the irregularities complained of had caused substantial injustice to the appellants. Sir Michael Barnett J.A. (as he then was) dissented.

The key issue of principle on the appeal to the Privy Council was whether, in order to uphold a challenge to an arbitral award for serious irregularity, there must in every case be: (i) a separate and express allegation of substantial injustice by the applicant; and (ii) separate and express consideration by the Court of whether the irregularity complained of has caused or will cause substantial injustice and a separate and express finding to that effect.

The judgment of the Judicial Committee was given by Lord Hamblen and Lord Burrows. On the main issue of law, they held while it is good practice and should be encouraged, it is not a requirement of a serious irregularity challenge that there be a separate and express allegation, consideration and finding of substantial injustice. Substance is more important than form. In arriving at this conclusion, their Lordships reviewed a number of the key authorities on challenges to arbitral awards for failures to deal with issues put to the tribunal and failures to give the parties a fair opportunity to present their case.

In relation to the first ground of challenge to the award in this case, the appeal was allowed in its entirety. Lord Hamblen and Lord Burrows held that the period for which damages could be awarded was an issue which had been put to the arbitrator and which she had failed to deal with in her award. Further, the nature of that irregularity was such that it was inherently likely to cause substantial injustice, and in substance, the Hon Mr Justice Winder had found that substantial injustice had been caused. The requirement of serious irregularity was, therefore, established, and the majority of the Court of Appeal had erred in holding otherwise.

In relation to the second ground of challenge, the appeal was allowed in part. Lord Hamblen and Lord Burrows held that the arbitrator had failed to give the Appellants a fair opportunity to address the adjustments she had made to reflect the failure of aspects of the Respondent’s claim, because the parties had previously addressed that claim on a global basis, and the first time the Appellants had learned of her deductions in that respect had been in the award. This was another irregularity the substantial injustice of which was self-evident, and in substance the Hon Mr Justice Winder had found it to be established. By contrast, the failure of the Respondent’s expert to rely on documents in support of his evidence was obvious, and the Appellants had a fair opportunity to address that point. There was, therefore, no unfairness or irregularity in the deduction made by the arbitrator to reflect that.

The judgment is here.