Summary

Arbitrators had breached their duty under the Arbitration Act 1996 s.33 to act fairly and impartially as between the parties by reaching a decision on a core issue without the losing party's main witness being cross-examined on that issue and by basing their decision on a case which had not been argued.

Facts

The claimant made an application under the Arbitration Act 1996 s.68 challenging an arbitration award in favour of the first defendant company.

The first defendant had made a claim in the arbitration for the repayment of loans made to the claimant. The arbitrators found that there was an estoppel by which the first defendant was precluded from demanding the repayment of any loans due to it before 1 January 2018, but that there was neither an agreement nor an estoppel, as the claimant had argued, extending the repayment date to 1 January 2020. In the claimant's statement of case and the witness statements of its principal (E), it was alleged that a meeting had taken place in August 2015 between E and the first defendant's principal (D) at which D had agreed to extend the repayment date of the loans to 1 January 2020. D denied that any such agreement had been reached. E also stated that the agreement to defer repayment to 1 January 2020 had been confirmed by D at a further meeting in June 2016. The first defendant's counsel did not cross-examine E in relation to the agreement relied on. The arbitrators found that no agreement had been reached at the August 2015 meeting. They stated as follows: "In summary there was no clear and unequivocal promise, representation or common assumption that an extension to 1 January 2020 was being granted come what may. At most there was a promise, representation or common assumption that an extension would need to be incorporated into a wider package which would cover other things as well. Unless and until that wider package was agreed in all its elements that promise, etc, would have no legal consequences and could not reasonably be relied upon as being binding on the [first defendant]".

The claimant argued that the arbitrators had breached their duty under s.33 to "act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent", because they found that there was no agreement or estoppel arising from the August 2015 meeting without E being cross-examined on that issue. Further, as to the arbitrators' finding concerning the parties' "common assumption", there had been no cross-examination; moreover, such a case was not addressed adequately or at all by the first defendant, nor was it ever argued or dealt with during the hearing before the arbitrators.

Held

There had been a breach of s.33 by reference to both of the grounds relied on by the claimant. E's account of the August 2015 meeting was the core issue. Fairness to a witness required that, if his evidence was to be disbelieved, he had to be given a fair opportunity to deal with the allegation, Markem Corp v Zipher Ltd [2005] EWCA Civ 267 considered. Further, given that there was no challenge at all to his evidence concerning the August 2015 meeting, no case had been put to E as to conditionality or contingency. He was given no opportunity to explain his case on those matters or to meet what the arbitrators subsequently concluded was the "proper analysis of his evidence". Success under s.68 did not only require the establishment of serious irregularity by reference, here, to s.68(2)(a). Such irregularity had also to have "caused ... substantial injustice to the applicant". On the one hand, E's evidence had potential flaws which were calling out for cross-examination both as to its "proper analysis" and otherwise. His case was, on the face of it, inconsistent with the contemporaneous documentation. Further, his case as to there being an agreement, promise or common assumption might fall to be disbelieved when set against his evidence as to the June 2016 meeting, where it would fall to be tested against the contrary evidence of a witness for the first defendant (J). On the other hand, D's evidence was poor to the extent of non-existent. Further, J's evidence still left open the possibility that there had been and continued the common assumption from August 2015. E also had an explanation for the apparently inconsistent documentation, and it would seem that the arbitrators themselves considered that there was a common assumption as to the repayment of the loans, albeit one that was conditional or contingent. If the point about condition/contingency had been raised before, or by, the arbitrators at the hearing, cross-examination might have resolved it. Alternatively, the claimant's counsel might have been able to persuade the arbitrators that a promise could be made or a shared assumption held, even though the formal details of a contractual variation still needed formally to be established. It could not possibly be said that if E had been properly cross-examined and given the opportunity to deal with what were seen as weaknesses in his case and/or to deal with the alternative case which the first defendant's counsel did not run, there might not have been a different outcome (see paras 34-36, 39-40 of judgment).

Application granted