Arbitrations – Failing to Give Adequate Reasons ‘Not a Serious Irregularity’

Judges have power to overturn arbitration awards if the proceedings have been infected by serious irregularity – but does that extend to a failure to give adequate reasons? In a guideline decision of interest to anyone engaged in commerce, the High Court has answered that question firmly in the negative.

A foreign state and one of its agencies (the employers) engaged an Isle of Man company to assist in tracing and recovering assets that had been unlawfully taken from the state and its institutions. The company was to receive 20 per cent of the value of any assets successfully recovered and returned to the state.

The contract had been on foot for about three years when the agency gave notice to rescind it. After the company submitted the dispute to an arbitrator, the latter found that the employers had acted in repudiatory breach of the contract. The company was awarded $21,589,460 in damages.

The employers challenged that outcome before the Court, claiming that the reasons given by the arbitrator were inadequate, in the sense of being analytically insufficient or otherwise defective. That was said to amount to a serious irregularity in the proceedings, within the meaning of Section 68 of the Arbitration Act 1996.

In rejecting the challenge and upholding the award, however, the Court noted that Section 68 is concerned with due process and not with whether an arbitrator has reached the right decision. The arbitration had been conducted in accordance with the procedure agreed between the parties and it was not open to the employers to argue that any failure by the arbitrator to give a more detailed explanation for his conclusions amounted to a serious irregularity.

The Court found that the arbitrator’s reasons were, in any event, both adequate and sufficient. He had indicated why he reached the conclusion he did on the essential issue before him and was not required to provide further explanation as to how he assessed the evidence. Even had a serious irregularity been established, there was no real possibility that the outcome of the arbitration would have been significantly different. The employers had suffered no substantial injustice.