THE AUTHORS:
Sze Hian Ng, Associate
Luke Adams, Associate at A&O Shearman
Introduction
In Contour Global v. Kosovo (II), Judgment of the High Court of Justice of England and Wales [2024] EWHC 877, 15 April 2024 the English High Court rejected a s. 68 challenge by the Government of Kosovo (GOK) against an award issued in favour of Contourglobal Kosovo (CKL). The case raises interesting questions about the extent to which an English court exercising supervisory jurisdiction should concern itself in the procedural niceties of an arbitration but ultimately affirms the high bar imposed upon any party seeking to clear the “serious irregularity” causing “substantial injustice” limbs of s.68.
Background
The dispute arose out of a series of contracts pursuant to which CKL agreed to design, construct, and operate a power plant for GOK. One of the contracts obliged GOK to perform certain conditions precedent by a specific date. CKL alleged that these conditions had not been met, which entitled it to terminate the agreements and claim development costs up to a contractually agreed cap of €19.7 million. The dispute was referred to arbitration under the ICC Rules.
The s.68 challenge related to the majority of the Tribunal’s decision on quantum (the Majority). GOK maintained that CKL had failed to substantiate any of the development costs it claimed, despite CKL adducing a series of quarterly summaries and invoices.
Following the hearing, the Tribunal issued a procedural order providing that:
“The Tribunal has not decided issues of liability and may not reach damages issues [sic.]. Should it do so, however, the Tribunal considers that analysis and organisation of the existing record regarding [CKL’s] development costs, and the costs of GOK studies is not sufficiently complete, and it may decide to appoint an expert to investigate and report on those matters pursuant to Article 25(3).”
The Tribunal reiterated this point in a subsequent procedural order (collectively, the Procedural Orders).
In its final award, the Majority awarded the development costs to CKL without appointing an expert (the Award). On quantum, the Majority found that the quarterly summaries and invoices showed an “indicia of regularity” sufficient to substantiate the development costs.
The S. 68 Challenge
Dissatisfied with the outcome, GOK challenged the Award. It alleged that the Procedural Orders created a “reasonable expectation” that the evidence adduced by CKL was insufficient. According to GOK, this meant that the Tribunal should have:
- dismissed the claim;
- appointed an expert accountant to review the evidence; or
- asked the parties to provide further evidence or submissions.
The Majority did none of these things.
GOK also argued that the Award contradicted the Tribunal’s prima facie evidential findings as set out in the Procedural Orders. The Majority did not provide an explanation for its apparent change in position, nor did it give GOK an opportunity to make further submissions. GOK alleged that the Majority had therefore failed in its duty to act fairly and impartially under s. 33(1)(a) of the Arbitration Act. This, GOK argued, constituted a serious irregularity under s. 68(2)(a) of the Arbitration Act.
No Serious Irregularity
In the first instance, the High Court set out the applicable principles for a s. 68(2)(a) challenge which are well-established and were not disputed. To succeed, the applicant must prove that the tribunal’s failure to act fairly and impartially:
- amounted to a serious irregularity
- gave rise to substantial injustice.
This test imposes a high threshold. It reflects a legislative aim to minimise curial intervention, such that relief under s. 68 will only be granted where the tribunal’s conduct is “so far removed from what could reasonably be expected from the arbitral process that justice calls out for it to be corrected”. Moreover, the court will generally grant a good deal of latitude to a tribunal in how it conducts an arbitration and will be slow to find that its conduct amounts to a breach of its due process duties under s. 33.
English courts also tend to construe arbitral awards and procedural orders in a reasonable and commercial way, in light of “what a reasonable person, reading that paragraph in its relevant context, would have concluded the Tribunal was saying”. This aligns with the courts’ default preference not to approach awards “with a meticulous legal eye endeavouring to pick holes, inconsistencies, and faults”.
Applying these principles, the High Court found that the Procedural Orders did not suggest that the Tribunal had predisposed of CKL’s quantum case. The reference to the existing record “not being sufficiently complete” simply acknowledged a comment made by the dissenting arbitrator during the hearing that CKL had left the Tribunal to make its own assessment of the evidence. This comment led to the suggestion that the Tribunal might consider appointing an expert to assist it with that analysis. There was nothing in the Procedural Orders capable of generating a “reasonable expectation” that the Tribunal should not determine the quantum issue without further evidence or submissions.
The High Court also rejected GOK’s argument that there were only three options available to the Tribunal due to its (alleged) findings in the Procedural Orders. To do so would put the horse before the cart, by dismissing CKL’s case on quantum before properly considering it. Nor did the Procedural Orders impair the Tribunal’s ability to assess the evidence provided by CKL independently. Rather, the Tribunal only alluded to the possibility of appointing an expert accountant to assist it with its analysis. The Tribunal was perfectly entitled to render the Award without doing so.
It was therefore “next to impossible” for the High Court to conclude that an “enormously experienced international Arbitral Tribunal” had predetermined the entirety of CKL’s quantum case based on a single paragraph in a procedural order. If this had been the Tribunal’s intention, then it would have said so in an award.
Indeed, to read the Procedural Orders in the way suggested by GOK would go against the “reasonable and commercial” construction of arbitral awards preferred by the courts. GOK’s “after-the-event” position relied on “technical inconsistencies and faults precisely as [the] case law warns against”. In reality, the Majority’s conduct was not “so far removed from what could reasonably be expected” in the ordinary course.
No Substantial Injustice
Even though no serious irregularity was found, the High Court also made some obiter observations about the “substantial injustice” test. To establish substantial injustice, GOK needed to show that “had the Tribunal acted as [GOK] contends it should have, the outcome might well have been different”. It is not a requirement to show that the result would necessarily (or even probably) have been different.
On this issue, the High Court found that GOK had made no attempt (whether by adducing its own expert report or otherwise) to show the court that it would have advanced new evidence or made further submissions discrediting CKL’s quantum case had it been given the opportunity to do so. Without any new evidence, it was “entirely unreal” that the Tribunal would have dismissed CKL’s claim had it asked the parties to make further submissions.
Commentary
This decision serves as a helpful reminder of the high threshold that English law imposes on parties seeking to bring a s. 68 challenge. Although the language in the Procedural Orders appeared to indicate (at least at face value) that the Tribunal considered the evidentiary record on the quantum issue to be insufficient, the High Court chose not to delve into the procedural minutiae of the underlying arbitration. Instead, it focused on interpreting the actions of the Tribunal in a pragmatic way.
This, in turn, reflects a broader principle. In striving to uphold arbitral awards, the courts will seek to afford tribunals some latitude. Section 68 merely functions as a “longstop in extreme cases” and cannot be used to “appeal” an award simply because a party is dissatisfied with the outcome.
The High Court also touched on the type of evidence required to satisfy the “substantial injustice” test. In principle, the applicant must show the court that:
- it would have adduced new evidence that the tribunal had not previously considered
- the new evidence “would have had an important influence on the result” (See, P&ID v. Ministry of Petroleum of Nigeria, Judgment of the High Court of Justice of England and Wales [2023] EWHC 2638, 23 October 2023, para. 502).
If the outcome of the arbitration would have been the same regardless of any irregularity, then no substantial injustice would have occurred.
ABOUT THE AUTHORS
Sze Hian Ng is an associate focussing on international arbitration. His experience covers international commercial and investment treaty arbitrations under LCIA, HKIAC, SIAC, and ICSID Rules. He has also assisted with enforcement and setting aside proceedings before the English and Singapore courts.
Luke Adams is an associate in the London International Arbitration team at A&O Shearman. He advises on international commercial and investment treaty arbitrations under the rules of various institutions (including the LCIA, HKIAC, and SIAC).
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
