K v S
| Jurisdiction | England & Wales |
| Judge | Sir Jeremy Cooke |
| Judgment Date | 09 July 2019 |
| Neutral Citation | [2019] EWHC 2386 (Comm) |
| Date | 09 July 2019 |
| Court | Queen's Bench Division (Commercial Court) |
[2019] EWHC 2386 (Comm)
Queen's Bench Division (Commercial Court).
Sir Jeremy Cooke.
Nicholas Tse of Brown Rudnick LLP for the claimant.
Richard Harding QC (instructed by Clyde & Co) for the defendant.
The following cases were referred to in the judgment:
Trayfoot v Lock [1957] 1 WLR 351.
Williams v Wallis & Cox [1914] 2 KB 478.
ZCCM Investments Holdings plc v Kansanshi Holdings plc [2019] EWHC 1285 (Comm); [2019] 1 CLC 770.
Arbitration – Serious irregularity – Arbitrators making procedural order excluding expert report raising new claim which was not pleaded – Whether order could be challenged as serious irregularity – Arbitration Act 1996, s. 68.
This was an application under the Arbitration Act 1996, s. 68 challenging a decision of arbitrators to exclude an expert report on the basis that it advanced a new claim which had not been pleaded.
The arbitration under the LCIA rules arose from the termination of an EPC subcontract. S served a statement of case and K served a statement of defence and counterclaim. The tribunal set out a procedural timetable providing for experts' reports in respect of issues raised in the claim and in the counterclaim. K served a schedule of loss which referred to two heads of loss. The first head of loss related to losses which arose out of the EPC subcontract itself. The second was described as ‘moral damages’ and encompassed damage to K's reputation, business standing and profitability. Nine months later K served an expert's report which concluded that the collapse of its business was caused by the defaults of S and purported to quantify the resulting financial losses of K. S complained that the causes of the collapse of K's business and the quantification of the resulting financial losses were not included in the list of topics for expert determination and that the report was based on entirely new legal and factual allegations. There was a hearing before the tribunal which granted S's application to exclude the report. K argued that there had been a serious irregularity within s. 68(2)(a), since the tribunal had failed to comply with its general duty under s. 33.
Held, refusing K's s. 68 application:
The court could not interfere with the tribunal's decision under s. 68. The tribunal's fully reasoned decision was that, having regard to the need for each party to have a reasonable opportunity of putting its case and dealing with that of its opponent and the need to adopt procedures suitable to the circumstances of the case so as to provide a fair means for the resolution of the dispute, the report advanced a new claim which was not pleaded or sufficiently pleaded and should not be allowed in evidence. Applications under s. 68 were not the place for appeals on points of law or fact, nor was there any room for appeals against procedural or case management decisions where there had been no procedural unfairness. Nor was there any scope for a challenge under the section to anything other than an award. The grounds set out in s. 68 represented a closed list of what constituted ‘serious irregularity’. The tribunal's decision was a procedural order within s. 34. There was no complaint of failure of due process in the tribunal reaching its decision. There was no exception to the rule that s. 68 was only concerned with due process. It was clear that the exclusion of evidence was within the arbitrator's case management powers and that the decision reached was one reached with due process and was a rational determination. The procedural order was not an award within the meaning of the act that was capable of challenge under s. 68, since there was no final determination on the merits of a substantive point in the arbitration. There was no serious irregularity. Nor could it be said that any substantial injustice would result. (ZCCM Investments Holdings plc v Kansanshi Holdings plc[2019] EWHC 1285 (Comm); [2019] 1 CLC 770applied.)
Sir Jeremy Cooke:
1. In this judgment, in order to preserve the confidentiality of the parties in an ongoing arbitration where a two week hearing was held from 18 February 2019 onwards and an award is, I understanding, pending until the determination of this current application, I shall refer to the respondent in the arbitration as ‘K’ and the claimant in the arbitration as ‘S’.
2. This is K's application under section 68 of the Arbitration Act 1996 (‘the Act’) in respect of a decision made by a three-person Tribunal in the form of what was termed ‘Procedural Order 5’ which ran to seven pages of description of the arguments of the parties on the points at issues, two pages of reasoning for the decision made, and a conclusion which read as follows:
‘Based on the foregoing, the Arbitral Tribunal, having thoroughly reviewed and considered both parties' position as set out in the background above and having regard to its duty to ensure that each party has a reasonable opportunity of putting its case forward and dealing with that of its opponent and to adopt procedures suitable to the circumstances of the case so as to provide a fair means of resolution of the dispute pursuant to Article 14.4 of the LCIA Rules and Section 33 of the 1996 Arbitration Act, the Arbitral Tribunal directs the following:
1. The expert report of RN advances a new claim which was not pleaded, or sufficiently pleaded, and accordingly shall not be allowed by the Tribunal in these proceedings …’
3. K's application is for an order that the relevant paragraphs of reasons set out in paragraphs 70 to 78 of that Procedural Order be set aside and remitted to the Tribunal for reconsideration of whether the expert report referred to should be struck from the record or for such further or other relief as the court deems appropriate.
4. I asked exactly what order was being sought and was told it was either to set aside those paragraphs of the decision (which do not, in fact, cover the conclusion that I have read out but must have been intended to do so) or for a remission, and in either case with the direction of the law from the court to the Tribunal to the following effect:
(1) The Tribunal should not exclude material evidence; and
(2) The Tribunal should not determine admissibility of evidence by reference to the quantum of the claim referred to in the report.
5. When pressed on the basis that the first direction amounted to nothing other than a direction to the Tribunal to admit the report, an alternative was suggested, namely a direction that the Tribunal should not exclude evidence on an issue that had been raised and adequately pleaded. The incongruity of the application will be immediately apparent to anyone familiar with section 68.
6. The complaint is made that the Tribunal excluded the expert report. The relief sought is not expressly that the court should order its admission which is obviously outside the proper exercise of any power of the court, but that the Tribunal should reconsider its decision when the current decision is set aside on the grounds that the court considers that decision is wrong.
7. In its 25-page skeleton argument, K maintained in paragraph 69 that the Tribunal decision was wrong and at paragraph 74, that the Tribunal's decision to exclude the report was not the legitimate exercise of a case management function under section 34 of the Act but was, instead, an improper exclusion of material evidence and contrary to the Tribunal's duties under section 33. That was the position adopted throughout oral argument this morning.
8. The reality of the matter is that the Tribunal reached a decision not to permit K to rely upon a report because it considered that the matters raised in it had not been pleaded, or adequately pleaded, and it would not be just to allow it to be relied on at a hearing due to take place shortly thereafter out of fairness to the other party. K challenges that finding on the basis of an alleged failure of the Tribunal to comply with its general duties under section 33 of the Act. This is an ambitious submission in the context of what is clearly a Procedural Order which not only recited the parties' submissions in it, but came to a reasoned conclusion that the evidence of the expert in the report should not be permitted as a matter of procedural fairness. There is no suggestion of any lack of due process in the procedure by which that decision to exclude the evidence was reached, only dissatisfaction with the result.
9. It is contended that there is a failure of due process because the effect of that decision reached by the Tribunal in the course of its exercise of its procedural powers was to deprive K of the...
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