{"id":272530,"date":"2021-06-11T00:00:00","date_gmt":"2023-09-19T16:10:08","guid":{"rendered":"https:\/\/blog.jusmundi.com\/?p=272530"},"modified":"2023-09-19T18:10:08","modified_gmt":"2023-09-19T16:10:08","slug":"serious-irregularity-challenge-to-awards-not-to-be-restrained-by-formalism","status":"publish","type":"post","link":"https:\/\/dailyjus.com\/index.php\/2021\/06\/11\/serious-irregularity-challenge-to-awards-not-to-be-restrained-by-formalism\/","title":{"rendered":"\u201cSerious Irregularity\u201d Challenge to Awards not to be Restrained by Formalism"},"content":{"rendered":"\n
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ABOUT THE AUTHOR:<\/strong> <\/strong><\/span>Yuri Pedroza Leite<\/strong><\/span>, FCIArb is a dual-qualified lawyer <\/span><\/strong><\/p>\n\n\n\n

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The judgment of the Judicial Committee of the Privy Council of the United Kingdom (the \u201c<\/span>Privy Council<\/b>\u201d) in <\/span>Therapy Beach Club v. RAV Bahamas and Bimini Bay Resort<\/span><\/i><\/a> has been heralded as a landmark judgment considering challenges to arbitral awards on grounds of <\/span>serious irregularity<\/span><\/a>. In this case, RAV Bahamas Ltd and Bimini Bay Resort Management Limited (jointly \u201c<\/span>RAV<\/b>\u201d) argued that the sole arbitrator\u2019s decision to award damages to Therapy Beach Club Incorporated (\u201c<\/span>Therapy<\/b>\u201d) was flawed by procedural irregularities<\/a> relating to the arbitrator\u2019s failure to address issues put to her. The key issue addressed by the Privy Council, in this case, was whether section 90 of the Bahamas Arbitration Act 2009 (the \u201c<\/span>Bahamas Arbitration Act<\/b>\u201d) requires \u201c<\/span>a separate and express allegation, consideration and finding of substantial injustice<\/a> for a serious irregularity to be established.<\/span><\/i>\u201d Section 90 of the Bahamas Arbitration Act is materially identical to section 68 of the English Arbitration Act 1996 (the \u201c<\/span>English Arbitration Act<\/b>\u201d)<\/span><\/p>\n\n\n\n

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Background<\/span><\/strong><\/h2>\n\n\n\n

On 31 December 2011, Therapy and RAV entered into a lease agreement pursuant to which Therapy leased a plot of land in Bimini Island from RAV. It was envisaged that Therapy would use the land to construct and operate a hospitality complex named Sakara Beach Club. The lease term was three years, with an option for Therapy to give a six months\u2019 notice to RAV to renew the lease for a further three years.<\/span><\/p>\n\n\n\n

In 2013, RAV alleged that the lease agreement was void. RAV then demolished the Sakara Beach Club and evicted Therapy from the land. Therapy initiated arbitration proceedings against RAV under the lease agreement, claiming that: (i) both the demolition of the Sakara Beach Club and eviction from the leased land had been in breach of the lease agreement; (ii) the lease agreement had been varied to include a nearby restaurant known as Atlantic Seafood; and (iii) it renewed the lease agreement for a further three-year period.<\/span><\/p>\n\n\n\n

In the <\/span>final award<\/span><\/a> of 21 August 2017, the sole arbitrator, <\/span>Cheryl Albury<\/span><\/a>,<\/span> ruled in favour of Therapy, determining, amongst others, that Therapy was entitled to damages for consequential loss of profits in the amount of USD 6,800,000. In arriving at this figure, the arbitrator adopted the valuation model put forward by Therapy\u2019s quantum expert (even though the arbitrator made certain discounts to the figure of USD 12,000,000 presented in the expert report). Crucially, the expert conducted their calculations on the basis of Therapy\u2019s case that the Atlantic Seafood restaurant was part of the lease, and that it had properly renewed the lease for a further three years.<\/span><\/p>\n\n\n\n

RAV challenged the award in the Supreme Court of the Bahamas on grounds of <\/span>serious irregularity<\/span><\/i> under section 90 of the Bahamas Arbitration Act. Central to the challenge was the sole arbitrator\u2019s deference to the quantum report presented by Therapy\u2019s expert when determining the loss of profits suffered by Therapy. RAV contested the approach adopted by the arbitrator, stating it was not offered an opportunity to properly address quantum before the issuance of the award. Specifically, RAV relied on two key grounds in its challenge. <\/span><\/p>\n\n\n\n

The <\/span>first ground<\/b> (reflected in paragraphs 5 to 8 of the final award) related to the failure of the arbitrator to deal with important issues that were put to her, a requirement under section 90(2)(d) of the Bahamas Arbitration Act (equivalent to section 68(2)(d) of the English Arbitration Act). These issues related to the arbitrator\u2019s inclusion of the lease renewal period in the quantum assessment, without including a proper analysis and reasoning in the award, even though RAV argued that Therapy had never rightfully opted for the renewal. RAV alleged (i) no notice had been given by Therapy in accordance with the lease agreement\u2019s terms, and (ii) the renewal clause was in any event uncertain, illusory and unenforceable. <\/span><\/p>\n\n\n\n

The <\/span>second ground<\/b> (reflected in paragraph 10 of the final award) related to the arbitrator\u2019s failure to give RAV a fair opportunity to address her calculation of damages<\/a>, contrary to section 90(2)(a) and section 44(1)(a) of the Bahamas Arbitration Act (equivalent to section 68(2)(a) and section 33(1)(a) of the English Arbitration Act respectively). In particular, RAV complained that the arbitrator relied on the expert valuation, which failed to disaggregate losses in respect to the Sakara Beach Club and Atlantic Seafood. The final figure in the quantum ruling resulted from the arbitrator\u2019s decision to discount: (i) the expert report\u2019s assessment by one third, as the lease variation claim to include Atlantic Seafood in the lease was rejected, and (ii) a further 15% to reflect the fact that the expert\u2019s figures were supported by his own memory and not by evidence. However, none of the parties made or were invited to make any submissions on whether and how the quantum assessment (including the discounts applied by the arbitrator) should be assessed.<\/span><\/p>\n\n\n\n

Winder J of the Bahamas court of first instance made a finding of serious irregularity in his judgment of 24 January 2018 and remitted the matter to the arbitrator for reconsideration of the damages. On the first ground, Winder J held that \u201c<\/span>the award did not deal with the issue put to the arbitrator of whether Therapy was legally entitled to the recovery of losses for the renewal period<\/span><\/i>.\u201d On the second ground, Winder J held that \u201c<\/span>the arbitrator acted unfairly in not affording RAV the opportunity to make representations prior to her<\/span><\/i> [decision] <\/span>to make a one-third deduction, and a further 15% deduction, for, respectively, the profits attributable to Atlantic Seafood . . . and the inaccurate recall of<\/span><\/i> [the expert].\u201d<\/span><\/p>\n\n\n\n

Therapy appealed from Winder J\u2019s judgment to the Bahamas Court of Appeal, which, by a <\/span>majority judgment<\/span><\/a> dated 16 August 2018, decided in favour of Therapy. The Court of Appeal found that Winder J\u2019s judgment \u201c<\/span>did not expressly and separately consider and find<\/span><\/i> that substantial injustice had been caused to<\/span><\/i> [RAV] <\/span>by the irregularity he had found; similarly<\/span><\/i> [RAV] <\/span>ha<\/span><\/i>[ve] <\/span>failed expressly and separately to plead and establish any such substantial injustice<\/span><\/i>.\u201d RAV then appealed to the Privy Council to reverse the Court of Appeal\u2019s judgment.<\/span><\/p>\n\n\n\n

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Issue<\/span><\/strong><\/h2>\n\n\n\n

The Privy Council had to consider \u201c<\/span>whether section 90<\/span><\/i> [of the Bahamas Arbitration Act] <\/span>requires there to be a separate and express allegation, consideration and finding of substantial injustice for a serious irregularity to be established<\/span><\/i>\u201d, as found by the majority in the Court of Appeal.<\/span><\/p>\n\n\n\n

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Decision<\/span><\/strong><\/h2>\n\n\n\n

In its decision, the Privy Council first offered certain observations regarding challenges for a serious irregularity under section 90 of the Bahamas Arbitration Act:<\/span><\/p>\n\n\n\n