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English court dismisses section 68 challenge to calculation of ICC award
This article focuses on one of the five unsuccessful grounds of challenge, namely, the complaint that the arbitral tribunal had acted unfairly in performing its own calculation of loss.
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Published 2 October 2023
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Craig Deuchrass
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LMH v EGK [2023] EWHC 1832 (Comm), 19 July 2023
The English Commercial Court has dismissed a challenge to an award under section 68 of the Arbitration Act 1996 (AA 1996), noting that 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 had agreed to arbitrate their disputes. This article focuses on one of the five unsuccessful grounds of challenge, namely, the complaint that the arbitral tribunal had acted unfairly in performing its own calculation of loss.
Section 68 challenges under the AA 1996
An award of an arbitral tribunal seated in England and Wales can be challenged if there has been (i) a serious irregularity of one or more of the specified kinds under section 68(2) of the AA 1996, and (ii) the irregularity has caused or will cause “substantial injustice” to the claimant.
The failure of an arbitral tribunal to comply with section 33 of the AA 1996 is one of the closed list of irregularities provided for under section 68(2). Section 33 imposes a general duty on an arbitral tribunal to, among other things, act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting its case and dealing with that of its opponent.
The facts
EGK and LMH were parties to a long-term contract for the supply of telecommunication services, which contained a London-seated ICC arbitration clause and provided for “good faith” renewal negotiations prior to expiry. Those negotiations failed, and, in the arbitration, EGK claimed damages for LMH’s failure to negotiate in good faith. The tribunal awarded EGK damages on a renewed contract in the sum of €10,270,400, plus interest.
LMH challenged this award under section 68 of the AA 1996 on the basis of a number of alleged irregularities leading to substantial injustice, including a complaint that the tribunal had determined damages using its own discounted cash flow calculation (based on EGK’s model but adjusted for accepted LMH criticisms of that model), without permitting the parties to comment on the methodology.
The decision
Dismissing the challenge, Foxton J found that none of the complaints satisfied the high threshold under section 68. On the calculation of damages, Foxton J said that LMH’s complaint that it should have been warned that the tribunal intended to carry out its own calculation was unrealistic:
“An arbitral tribunal will very often be faced with a complex calculation of the claimant’s case presented in its most optimistic form, and a response which either simply critiques that approach, or offers an assessment of loss from the polar perspective. While there are arbitrations in which an arbitral tribunal’s options are limited to choosing from one or other end of the spectrum … the general position is that arbitral tribunals can and frequently do calculate their own measure of loss, lying somewhere between the extremes presented to them.”
In relation to the arbitral tribunal’s general duty of fairness under section 33 of the AA 1996, the tribunal is not required to offer the parties an opportunity to make submissions on its proposed quantum calculation, provided that the issues and material relied upon by the tribunal were “in play” in the arbitration. Foxton J commented that it must have been obvious to the parties and wholly within their contemplation that the tribunal would take the approach that it did:
“… unless the Tribunal either awarded the entire amount claimed or nothing (and I cannot believe any lawyer with experience of international arbitration would have regarded either outcome as a likely scenario), then the Tribunal would have to make its own adjustments or allowances to reflect LMH’s attacks on EGK’s quantum case, to the extent that they were regarded as having merit. That is what they did, and they did so using “building blocks” taken entirely from the record.”
Whilst there did appear to be an error in the manner in which the tribunal had made one adjustment in the calculation, LMH could have asked the tribunal to correct such “computational error” under article 36 of the ICC Rules. A failure by LMH to do so was a bar to its section 68 application. Additionally, if the adjustment raised by LMH had not involved a computational error, but was simply an error in the tribunal’s reasoning, that would not generally provide a basis for a section 68 challenge.
For more information, please visit our Arbitration Lawyers page.
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English court dismisses section 68 challenge to calculation of ICC award
This article focuses on one of the five unsuccessful grounds of challenge, namely, the complaint that the arbitral tribunal had acted unfairly in performing its own calculation of loss.
Published 2 October 2023
Associated sectors / services
Authors
LMH v EGK [2023] EWHC 1832 (Comm), 19 July 2023
The English Commercial Court has dismissed a challenge to an award under section 68 of the Arbitration Act 1996 (AA 1996), noting that 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 had agreed to arbitrate their disputes. This article focuses on one of the five unsuccessful grounds of challenge, namely, the complaint that the arbitral tribunal had acted unfairly in performing its own calculation of loss.
Section 68 challenges under the AA 1996
An award of an arbitral tribunal seated in England and Wales can be challenged if there has been (i) a serious irregularity of one or more of the specified kinds under section 68(2) of the AA 1996, and (ii) the irregularity has caused or will cause “substantial injustice” to the claimant.
The failure of an arbitral tribunal to comply with section 33 of the AA 1996 is one of the closed list of irregularities provided for under section 68(2). Section 33 imposes a general duty on an arbitral tribunal to, among other things, act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting its case and dealing with that of its opponent.
The facts
EGK and LMH were parties to a long-term contract for the supply of telecommunication services, which contained a London-seated ICC arbitration clause and provided for “good faith” renewal negotiations prior to expiry. Those negotiations failed, and, in the arbitration, EGK claimed damages for LMH’s failure to negotiate in good faith. The tribunal awarded EGK damages on a renewed contract in the sum of €10,270,400, plus interest.
LMH challenged this award under section 68 of the AA 1996 on the basis of a number of alleged irregularities leading to substantial injustice, including a complaint that the tribunal had determined damages using its own discounted cash flow calculation (based on EGK’s model but adjusted for accepted LMH criticisms of that model), without permitting the parties to comment on the methodology.
The decision
Dismissing the challenge, Foxton J found that none of the complaints satisfied the high threshold under section 68. On the calculation of damages, Foxton J said that LMH’s complaint that it should have been warned that the tribunal intended to carry out its own calculation was unrealistic:
“An arbitral tribunal will very often be faced with a complex calculation of the claimant’s case presented in its most optimistic form, and a response which either simply critiques that approach, or offers an assessment of loss from the polar perspective. While there are arbitrations in which an arbitral tribunal’s options are limited to choosing from one or other end of the spectrum … the general position is that arbitral tribunals can and frequently do calculate their own measure of loss, lying somewhere between the extremes presented to them.”
In relation to the arbitral tribunal’s general duty of fairness under section 33 of the AA 1996, the tribunal is not required to offer the parties an opportunity to make submissions on its proposed quantum calculation, provided that the issues and material relied upon by the tribunal were “in play” in the arbitration. Foxton J commented that it must have been obvious to the parties and wholly within their contemplation that the tribunal would take the approach that it did:
“… unless the Tribunal either awarded the entire amount claimed or nothing (and I cannot believe any lawyer with experience of international arbitration would have regarded either outcome as a likely scenario), then the Tribunal would have to make its own adjustments or allowances to reflect LMH’s attacks on EGK’s quantum case, to the extent that they were regarded as having merit. That is what they did, and they did so using “building blocks” taken entirely from the record.”
Whilst there did appear to be an error in the manner in which the tribunal had made one adjustment in the calculation, LMH could have asked the tribunal to correct such “computational error” under article 36 of the ICC Rules. A failure by LMH to do so was a bar to its section 68 application. Additionally, if the adjustment raised by LMH had not involved a computational error, but was simply an error in the tribunal’s reasoning, that would not generally provide a basis for a section 68 challenge.
For more information, please visit our Arbitration Lawyers page.
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Craig
DeuchrassSenior Associate
Specialising in Commercial disputes, Banking & financial disputes and Commercial arbitration
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