Those Who Submit Disputes to Arbitration Must Live With the Results!

When contracting parties voluntarily submit disputes to arbitration, they must almost always live with the outcome and the courts are very reluctant to intervene. In one case on point, the High

Court declined to overturn a $760 million arbitration award, notwithstanding that one of the parties had suffered a substantial injustice.

The case concerned the purchase of a company that indirectly controlled an eastern European country’s largest fixed-line telecoms provider. The purchaser had agreed to pay $860 million for the relevant shares, but had paid only the first instalment of $100 million. The seller argued that it was a simple case of an unpaid debt and, after ruling comprehensively in its favour, an arbitration panel in London directed the purchaser to pay the balance of the agreed price.

In challenging that award under Section 68 of the Arbitration Act 1996, the purchaser argued that the proceedings had been infected by serious irregularity. After the award was published, a court in the eastern European country had authorised state confiscation of the telecoms provider, without compensation. That ruling was subject to appeal, but the purchaser feared that, if the confiscation went ahead, it would receive nothing of value in return for its very substantial investment.

In ruling on the matter, the High Court noted that those who choose to arbitrate their disputes frequently take the risk of inconsistent decisions, in that arbitrators can decide one thing and courts another. However, the foreign proceedings had commenced whilst the arbitration process was in train and their existence was a potentially important piece of evidence for the arbitrators to consider.

The Court found that the arbitrators might well have reached a different conclusion had they awaited the outcome of the foreign proceedings before publishing their award. Their refusal to defer the proceedings until after that outcome was known had caused substantial injustice to the purchaser.

However, the Court ruled that the issue of substantial injustice did not arise as the purchaser had failed to establish that there was a serious irregularity in the arbitration proceedings. The arbitrators had enjoyed a wide discretion and had been entitled to conclude that granting a deferral would entail a substantial delay, the length of which could not be predicted. They had also reasonably taken the (as it turned out mistaken) view that the foreign court was likely to concur with their conclusions. The challenge to the arbitration award was dismissed.

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