A party’s failure to comply with peremptory order may result in loss of right to a hearing

The Commercial Court recently decided that there was no procedural irregularity in an arbitrator’s decision to proceed with an arbitration on a document-only basis, having regard to section 41(7)(c) Arbitration Act 1996, which empowers a tribunal to “proceed to an award on the basis of such materials as have been properly provided to it” if a party has failed to comply with any kind of peremptory order.

Background

In T v V & W [2018] EWHC 1492 (Comm), parties were involved in an ad hoc arbitration concerning the circumstances in which their partnership had come to an end. The parties agreed that the arbitration would be conducted in accordance with Articles 4 and 13 to 32 of the LCIA Rules 2014, since the partnership agreement did not specify the applicable rules. The sole arbitrator rendered an award dated 5 January 2018 in favour of the respondents, ordering the claimant to pay £955,058 as well as the costs of the arbitration and interest. The claimant challenged the award under section 68 Arbitration Act 1996, claiming that a serious irregularity had occurred as the arbitrator had not allowed an oral hearing.

The reason for not allowing an oral hearing originated from a previous application by the claimant, which saw the claimant requesting the Commercial Court to remove the sole arbitrator pursuant to section 24 Arbitration Act 1996 on the grounds of justifiable doubts as to her impartiality and her refusal or failure properly to conduct the proceedings. The Commercial Court rejected this application (by way of judgment dated 7 February 2017, [2017] EWHC 565 (Comm)) and ordered the claimant to pay the costs of the application. When the claimant refused to pay the costs, the arbitrator ordered the claimant to put up security for his claim under Article 25 of the LCIA Rules 2014. That order was not complied with and became a peremptory order under section 41(5) of the Arbitration Act 1996.

The sole arbitrator then decided to proceed under section 41(7)(c) Arbitration Act 1996 which empowers a tribunal to “proceed to an award on the basis of such materials as have been properly provided to it … if a party fails to comply with any kind of peremptory order.” The arbitrator directed that:

"each party may give further written submissions and I will then conduct the arbitration on a documents only basis. Where any matters in the material are unclear to me, I would propose to apply section 22.1 of the LCIA Rules ‘Additional Powers’. Under section 22.1 of the LCIA Rules I may upon my own initiative after giving the parties a reasonable opportunity to state their views, decide to … (3) conduct such enquiries as may appear to the Arbitral Tribunal to be necessary or expedient and (5), order any party to make any documents under its control available for inspection…”

The Decision

Males J had to decide whether this approach was so irregular as to fall within section 68(2) Arbitration Act 1996.

According to Males J it was clear that the arbitrator had proceeded under section 41 Arbitration Act 1996, based on the fact that there was a failure to comply with the peremptory order. At the same time however the arbitrator had reserved the right, whenever necessary, to seek clarification from the parties. Males J considered that:

“Her references to a “proposal” did not mean that the question whether to proceed to an award on the material available was to be the subject of further representations. It referred only to the possibility of a request for such written clarification as she might choose to seek and to the timing of any responses to such a request…”

Males J noted that “it does appear that, where parties agree that [the LCIA Rules] should apply, as in this case, a party does have a right to a hearing.” Article 19(1) LCIA Rules 2014 reads as follows:

“Any party has the right to a hearing before the Arbitral Tribunal on the parties’ dispute at any appropriate stage of the arbitration (as decided by the Arbitral Tribunal), unless the parties have agreed in writing upon a documents-only arbitration…”

He however concluded that this right to a hearing is subject to the provisions of section 41 Arbitration Act 1996 dealing with peremptory orders, which states that:

“(1) The parties are free to agree on the powers of the tribunal in case of a party’s failure to do something necessary for the proper and expeditious conduct of the arbitration
(2) Unless otherwise agreed by the parties, the following provisions apply…”

Accordingly, in the judge’s view:

“it is possible to contract out of the provisions relating to peremptory orders set out in the later subsections of section 41. However, it has not been suggested, nor so far as I can see could it be suggested, that parties who agree to the LCIA Rules in cases where the seat of the arbitration is in England have contracted out of those provisions.”

He therefore decided that there was no irregularity in this case falling within section 68(2) Arbitration Act 1996 and rejected the claimant’s application. He however noted that, in a case where there was no peremptory order, and which was subject to Article 19 of the LCIA Rules, a failure to afford a party a hearing at all may be an irregularity falling within section 68(2)(c) (“failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties”).

Comment

This judgment again demonstrates the English Court’s desire to uphold the parties’ agreement to arbitrate in full, even when to do so might result in a party losing its basic right to a hearing. A failure to comply with a peremptory order is taken seriously by the courts and parties in arbitration should therefore be aware that their agreement to arbitrate means that they have committed themselves to comply with all directions and/or orders given by the tribunal. A failure to comply may have serious consequences.