The Secretary of State for the Home Department v Raytheon Systems Ltd

Hearing dates: 8–9 December 2014

Given confidentiality considerations and the fact that the application under review is made under the Arbitration Act 1996 and relates to a confidential arbitration, I initially ordered that the identities of the parties were not to be disclosed (subject to any application otherwise), they being referred to as Y and Z. I sought therefore to be as circumspect as is appropriate in the drafting of this judgment. Since the handing down of this judgment on 19 December 2014, the parties later agreed that this judgment can be handed down publicly. I will still below refer to the Claimant as "Y" and the Defendant as "Z". HS means the Home Secretary

Z was employed by Y under a contract ("the Agreement") made some years ago to design, develop and deliver very substantial technology systems. The likely value of the Agreement was a high nine figure sum, if not more. The Contract was purportedly terminated in July 2010 by Y. Issues arose relating to the responsibility for such termination and Y instituted arbitration proceedings with the arbitrators being English and American (nominated by Y and Z respectively) and the chairman being Canadian. The arbitrators produced their lengthy Partial Final Award on 4 August 2014, albeit corrected by memorandums dated 18 August and 29 September 2014. In broad terms that Award decided that Y had unlawfully terminated the Agreement, dismissing Y's money claims, that Y had repudiated the Agreement and that Z had accepted that repudiation. The arbitrators awarded damages to Z which included £126,013,801 for what was known as claim A4 — Transfer of Assets. Other sums awarded totalled £59,581,658 plus some interest.

Y seeks to have the Partial Award set aside and declared to be of no effect. Y relies on Section 68(2)(d) of the Arbitration Act 1996 on the grounds of "serious irregularity" affecting the tribunal or the award on the basis of "failure by the tribunal to deal with all the issues that were put to it", those issues relating to what Y articulates as important parts of its case on liability and on quantum in relation to Claim A4. These relate to two associated issues on liability and three on quantum. In broad terms, the tribunal's failure in relation to liability is said to have been to disregard key parts of Y's case in relation to contractual default by proceeding only to address whether there was breach by Y of a condition precedent in the termination clause and in relation to quantum to ignore Y's case on the value of assets transferred after termination and on the need for any cost basis of evaluation to exclude costs which were attributable to default on the part of Z.

The parties have provided the Court with some 3,400 pages of documentation as well as 42 legal authorities. The prose parts of the witness statements run to 137 pages and of the skeleton arguments to 155 pages. The law and practice is largely agreed, albeit that there are some minor variants, upon which the case will probably not depend. Apart from the award, I have been referred in argument to no more than about 200 pages of the exhibits to the statements. Whilst one understands the potential impact of an application such as this succeeding or not and the desire of parties to leave no actual or imagined stones unturned, there should be a great appreciation of the need to limit the material for such an application and its defence to what is really and positively relevant, particularly where the parties are before a specialist court which has specific experience of the type of contract with which the application is concerned.

The Contract

It is unnecessary for the Court to make any findings as to what the contract means. However, it is necessary to refer to a number of the terms to put the arbitrators' approach and findings into context.Clause 11 required Z to provide the specified Services in accordance with the Agreement provisions, including the "Service Requirements", "Standards", "Good Industry Practice" and the "Quality Plans". Provision was made by Clause 12 for "Additional Services" to be called for and provided.Clauses 23 to 26 addressed delays in implementation.

Clause 23.1 required Z to "ensure that, in the design, development and implementation of the System and the delivery of the Services, each Milestone is Achieved or more before its associated Milestone Date". These Milestone Dates were identified in Schedule 2.1 Part G, Schedule 6.1 and the "Service Provider Implementation Plan".Clause 23.2 provided that Z was to notify Y "as soon as reasonably practicable" if "the design, development, testing or implementation of the System or the delivery of the Services…does not conform with the Implementation Plans and may cause Delay to", amongst other things, achieving "any Milestone by its associated Milestone Date". Within 10 days of becoming aware of such actual or potential delays, the parties were to "comply with the Remedial Plan Process to rectify any Delay" (Clause 23.3).Clause 23.4 provided that Z "shall have no claim…for any Compensation as a result of any Delay, to the extent that it is not the result of a Compensation Event". Where the Delay arises due to a Compensation Event the provisions in Clause 25.2 were to apply.Clause 24 dealt with delays in implementation attributable to Z's default; thus, by Clause 24.1 if any Milestone was not achieved by the requisite date, Y was to issue a Non-Conformance Report.Clause 24.2 provided for Delay Deductions as set out in Schedule 7.1 to be made for the period of culpable delay, such "Deductions" in effect being a form of liquidated damages.Clause 25 provided for delays in achieving Milestone Dates as a result of, amongst other things, an Authority Cause (defined as "any material breach" by Y, albeit that Schedule 1 — Definitions qualifies that somewhat). Without making any legal finding, it is however at least highly arguable that the provisions of Clause 25 provide for conditions precedent which required Z to give effective and timely Compensation Notices, failing which it was not to "be entitled to any Compensation or relief in respect of the Compensation Event concerned" (Clause 25.2.5).Clause 26.1 provided that where a "Delay arises from an event other than a Force Majeure Event, Compensation Event or Relief Event, the Service Provider shall be responsible for such a Delay".Clause 57.3 also required Z to give Y an "OS Relief/Compensation Notice" within 10 days of it becoming aware that a Relief Event (such as fire, explosion or strike) or Authority Cause had "adversely affected or [was] likely to adversely affect the ability of [Z] to observe and/or perform its other obligations"; if such a Notice was not provided within the requisite time-frame then Z "shall not be entitled to any relief…in respect of the Authority Causes…" (Clause 57.3.8).

Payment to Z was governed largely by Schedule 7.1 and Annexes thereto. Although there were various phase payments, substantial payments were only payable upon achieving the various milestones. It was common ground that, at least up to the stages which had been reached by the time of termination, Z's financial entitlements were such that its costs would significantly exceed such entitlements.

Clause 69 addresses termination rights and is probably the key clause at least so far as this application is concerned.Clause 69.1 is, so far as is material, in the following terms:

"69.1 This Clause 69.1 sets out the rights of [Y] to terminate this Agreement for cause.

69.1.1 [Y] may terminate this Agreement by giving a Termination Notice to [Z] if one or more of the circumstances set out in Clause 69.1.2 exist, each being a Default. Such Termination Notice shall specify the Default and specify whether [Y], in accordance with paragraph 2.15 of Schedule 7.1 (Charges and Invoicing), wishes to exercise its rights to recover all or part of the Clawback Eligible Payments as described in paragraph 2.15.1 of Schedule 7.1 (Charges and Invoicing).

69.1.2 The circumstances giving rise to [Y's] right to terminate in the event of Default are:

(a) [Z] is in material Default which it has failed to remedy in accordance with the Remedial Plan Process;

(b) [Z] commits a material Default of this Agreement which is irremediable;

(c) [Z] commits repeated Defaults (whether of the same or different obligations and regardless of whether those Defaults are remedied), which [Y] considers, in its reasonable opinion, collectively constitute a material Default, in which case Clause 69.1.2(a) or 69.1.2(b) shall apply;

(d) [Z] has failed to Achieve a Key Milestone by the dates set out in the Implementation Plans or in accordance with any Remedial Plan which has been agreed under Schedule 8.9 (Remedial Plan Process), in which case Clause 69.1.2(a) shall apply…

(l) any Programme Milestone is not Achieved within three (3) months of the scheduled date for the Achievement of the relevant Programme Milestone.

In determining whether to exercise any right of termination pursuant to this Clause 69.1.2 [Y] shall:

(i) act in a reasonable and proportionate manner having regard to such matters as the gravity of any offence and the identity of the person committing it; and

(ii) give all due consideration, where appropriate, to action other than termination of this Agreement."

I have underlined the...