Lmh v Egk

Hearing date: 11 July 2023

Draft Judgment Circulated: 14 July 2023

Approved Judgment

I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

THE HONOURABLE Mr Justice Foxton

This judgment was handed down by the judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be Wednesday 19 July 2023 at 10:30am.

The Honourable

This is the applicant's ( LMH's) application under s.68 of the Arbitration Act 1996 ( the 1996 Act) to set aside an ICC arbitration award ( the Award) on the basis that the Award and/or the proceedings are affected by five grounds of serious irregularity.

I should state at the outset that I have concluded that each of the five challenges fails. That is scant reward for the efforts of Mr Trompeter KC, who argued a difficult application with considerable skill and judgment. The outcome reflects:

i) the high threshold for establishing a successful s.68 challenge;

ii) the fact that, objectively viewed, there was nothing about the course of the arbitration or Award which was in any way surprising or outside the contemplation of reasonable parties who have agreed to arbitrate their disputes; and

iii) the fact that the one grievance which may have some substance does not fall within any of the limited categories of serious irregularity recognised by s.68.

The background

LMH is the largest mobile phone operator in its home state, which I shall refer to as Syldavia. On 16 January 2009, EGK entered into a long-term contract ( the MSA) for the supply of telecommunication services by LMH which EGK would on-sell, the MSA being for a term equal to “the remaining term” of LMH's own licence from the relevant regulator to operate a mobile communications network. Clause 3.1 of the MSA provided:

“Parties agree that at least six (6) months prior to expiration of this agreement, (which is in line with [LMH's] ‘License Term’), the parties shall meet and discuss in good faith the renewal of this agreement for further extension in accordance with the New License Terms.”

The MSA was governed by Syldavian law and provided for ICC arbitration.

Following negotiations which were very much in issue in the arbitration, on 24 June 2019 LMH sent EGK a termination notice contending that the MSA would expire on 30 July 2019. EGK disputed that the MSA had expired, and also alleged that LMH had failed to conduct negotiations for a renewal/extension of the MSA in compliance with Article 3.1. It commenced an ICC arbitration against LMH which was governed by Rules of Arbitration of the ICC in force as from 1 March 2017 ( the ICC Rules).

In its Award, the arbitral tribunal ( the Tribunal) rejected EGK's case that the MSA had not expired on 30 July 2019. However, it found that LMH had breached its obligation under the MSA to negotiate a new MSA in good faith and it found LMH liable to pay EGK in the sum of €10,270,400 (of which €7,590,400 was in respect of EGK's lost profits), plus interest.

Section 68 challenges: the law

It is well-established that s.68 of the 1996 Act provides a closed list of different types of irregularity which provide a basis for challenging the award of an arbitral tribunal seated in England and Wales before the court. In addition to establishing the existence of one or more irregularities of the specified kind, the s.68 application must establish that the irregularity “has caused or will cause substantial injustice to the claimant.”

The high threshold for a successful s.68 challenge was noted by Lord Steyn in an oft-quoted passage in Lesotho Highlands Development Authority v Impreglio SpA [2006] 1 AC 221, [28]. Respondents to s.68 applications often supplement that citation with a reference to [280] of the Departmental Advisory Committee Report on the Arbitration Bill of February 1996 which notes that s.68 was only intended to be available “in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected.” While it is important to keep in mind that it is the wording of the statute itself which ultimately matters (cf. Christopher Clarke J in Bandwidth Shipping Corporation v Intaari [2006] EWHC 2532 (Comm), [61]), the DAC Report is a helpful reminder of the significant burden which any s.68 applicant faces.

Against that background I turn to the grounds of challenge.

Ground 1 and Ground 2

It is convenient to take these grounds together. To the extent that they remained live at the hearing:

i) Ground 1 alleged that the Tribunal failed to deal with the issue of whether the breach of the MSA found by the tribunal caused EGK any loss.

ii) Ground 2 alleged that if and insofar as the Tribunal did deal with that issue, it followed that the Tribunal had failed to give reasons for its Award contrary to s.52(4) of the 1996 Act and/or Article 32(2) of the ICC Rules.

It was not in dispute before me that:

i) If a tribunal has dealt with an issue in any way, that is sufficient for the purposes of s.68(d) of the 1996 Act, whether the tribunal has dealt with the issue well, badly or indifferently, nor does it matter that the tribunal might have expressed its conclusions at greater length RAV Bahamas Ltd v Therapy Beach Club Inc [2021] UKPC 8, [43].

ii) It is not sufficient to establish that the award does not comply with s.68(2)(h), because it does not “contain the reasons for the award” as required by s.52(4), merely because the reasons are said to be inadequate: UMS Holding Limited v Great Station Properties SA [2017] EWHC 2398 (Comm), [134] and Islamic Republic of Pakistan v Broadsheet LLC [2019] Bus LR 2753, [22]–[23] (although I should record that Mr Trompeter KC reserved the right to challenge the correctness of those decisions, should the opportunity to do so arise in a higher court).

Encapsulating this part of LMH's case in a nutshell, it contends that before the Tribunal could conclude that the breach of the duty arising under clause 3.1 to negotiate an extension of the MSA in good faith could cause EGK a loss of profits, it would be necessary for the Tribunal to conclude that negotiations in good faith would have led to an extension of the MSA. LMH contends that the Tribunal did not deal with this point, alternatively did not give reasons for its conclusion. It is important to note that the Tribunal was here concerned with an issue of counterfactual causation – what would have happened had events taken a different course – rather than historic causation – did event A, which happened, cause loss. There is inevitably a difference in the way in which a factfinder approaches those two exercises, and it is not surprising to find (for example), that the Award deals at much greater length with the issue of whether LMH negotiated in bad faith, than with the issue of what would have happened if it had negotiated in good faith.

I am satisfied that the Tribunal both addressed the causation issue, and gave reasons for its conclusion and, were the matter relevant, I am not persuaded that those reasons can be said to be so deficient that LMH has a “due process” complaint. As is so often the case, to do fairness to the Tribunal it is necessary to refer to a number of passages of the Award:

i) The Tribunal concluded that “the decisive term to be negotiated between the Parties was the revenue-sharing model” (Award, [202]).

ii) LMH had offered the lowest possible margin to EGK from the range communicated to LMH by its appointed expert (Award, [203(3)]).

iii) While Article 3.1 did not have the effect that the parties were not free to refuse to continue the MSA, there was a liability in damages “to the extent that the violation of the specific good faith obligation causes further expectational damages” (Award, [220]) and “the Tribunal finds that this is the case here” (Award, [221]): a clear finding “dealing with” the issue of causation.

iv) LMH's bad faith deprived EGK “from ensuring a further [MSA] which otherwise it would have been able to obtain” (Award, [222]): another clear finding “dealing with” the issue of causation.

v) The Tribunal identified various objective factors which were “of guidance” in determining “for which term the Parties may have entered into a new [MSA] if the negotiations had been conducted in good faith” (Award, [269]). The Tribunal concluded that there was “little likelihood” that the parties would have agreed a 20-year term given their mutual hostility (Award, [270]), before arriving at a six-year figure (Award, [275]). The use of objective information on market transactions, adjusted by reference to the fact that the parties' poor relationship made a long term unlikely, was a perfectly proper (and in any event, appropriately reasoned) means of answering the hypothetical counterfactual issue of what the parties would have done if they had negotiated in good faith.

vi) The Tribunal noted for a second time the central role of revenue-sharing in the negotiations (Award, [276]), and expressly found that a 50:50 revenue share “would be the most probable outcome of negotiations” (Award, [284]). That finding of itself is a further finding on causation (the Tribunal could not have found that good faith negotiations would have led to agreement on a 50:50 revenue share had they not found they would have led to agreement) and the Tribunal gave various reasons for their...