In Oldham v. QBE Insurance (Europe) Ltd [2017] EWHC 3045 (Comm), the Commercial Court allowed a challenge to an arbitral award under section 68 of the Arbitration Act 1996 (the "AA”) on grounds of serious irregularity where the applicant had not been given a reasonable opportunity to make submissions as to costs.

Background

Mr Oldham, an accountant and insolvency practitioner, was engaged in High Court proceedings for misappropriation of company property, which resulted in a judgment against him for a sum in excess of £1m.  Mr Oldham has appealed this judgment, and the appeal remains outstanding.

A separate dispute arose between Mr Oldham and QBE, Mr Oldham’s professional indemnity insurers, as to whether Mr Oldham’s policy covered his potential liability in the High Court proceedings.  This coverage dispute was submitted to arbitration.  In the meantime, QBE funded Mr Oldham’s costs in defending the High Court proceedings (the “Defence Costs”), pursuant to a clause in the insurance policy which required QBE to do so pending resolution of any dispute as to QBE’s liability to indemnify Mr Oldham.

The arbitrator rendered two awards in favour of QBE.  In the Part I award, the arbitrator held that the High Court proceedings were not covered by the policy, and ordered Mr Oldham to pay the costs of the arbitration.  Following the Part I award, QBE served costs submissions, requesting reimbursement of the Defence Costs from Mr Oldham and an interim payment on account of the costs of the arbitration.  Before expiry of the time within which Mr Oldham could submit reply submissions to the costs submissions, the arbitrator issued the Part II award, in which he ordered Mr Oldham to reimburse all Defence Costs to QBE within 28 days, and to make an interim payment of £70,000 on account of costs within 28 days.

Consequently, Mr Oldham brought an application under section 68 AA which, where the seat of arbitration is in England, allows an award to be challenged before the English courts on the ground of serious irregularity. In particular, he argued that he had not been given a reasonable opportunity to address (a) the award of costs in QBE’s favour; and (b) the payment on account of costs. Section 68 AA sets out a number of grounds upon which a “serious irregularity” may be established.  In this case the ground in issue was section 68(2)(a)AA, being a failure of the tribunal to comply with its general duty of fairness under section 33 AA.

The decision

Popplewell J allowed the challenge under section 68 AA, finding that there was a serious irregularity because Mr Oldham had been deprived of a reasonable opportunity to advance his arguments against the costs orders.

The judge held that, in order for a section 68 AA challenge to succeed on the basis of section 68(2)(a) AA, there must be: (a) a breach of section 33 AA (duty of the tribunal to act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case); (b) amounting to a serious irregularity; (c) giving rise to substantial injustice.  He explained that the test involves a high threshold, and that only an extreme case would justify the court’s intervention.  There would generally be a breach of section 33 AA where the tribunal decides the case on the basis of a point which one party has not had a fair opportunity to deal with.  However, there must also be substantial injustice.  The applicant need not show the result would necessarily, or even probably, have been different, but that, had he had an opportunity to address the point, the tribunal might well have reached a different view.

In this instance, Popplewell J found that, given the opportunity, Mr Oldham would have argued that an order for costs should have been deferred until the resolution of the appeal of the High Court proceedings.  He also would have challenged both the timing and amount of the payment on account of costs he was ordered to make.  The failure of the arbitrator to give Mr Oldham the opportunity to address these arguments before rendering his awards was a serious irregularity, especially as Mr Oldham acted as a litigant in person and was in difficult financial circumstances.

Comment

This case provides useful clarification that a tribunal’s duty under section 33 AA to act fairly and impartially as between the parties applies to the tribunal’s decision on costs as well as to the substantive decision.  Whilst the threshold for mounting a section 68 AA challenge is high, this case demonstrates that, if one party is not given an opportunity to make submissions on costs, the award may be susceptible to challenge.

Joanne Finnegan

Associate
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