Triple challenge on grounds of serious irregularity fails to overturn arbitral award in shareholders’ agreement dispute

United KingdomScotland

In an appeal in the case of Gracie v Rose [2019] EWHC 1176 (Ch), the High Court’s decision to dismiss three challenges to an arbitral award in a shareholders’ agreement dispute has emphasised:

  1. the requirement for parties to seek clarification of awards from arbitral tribunals in circumstances where those awards are ambiguous as to whether an issue is dealt with, rather than simply allege that the tribunal failed to deal with the issue at all; and
  2. the desirability for an award to clearly identify the issues presented for decision, even if the decision itself shows that some of these do not need to be decided.

The issues

The underlying arbitration related to the price to be paid to Mrs Rose under a shareholder agreement in respect of her deceased husband’s shareholding; her entitlement to dividends; and a counterclaim for damages by another shareholder, Mr Gracie. The arbitrator found in favour of Mrs Rose on each of these issues.

Mr Gracie challenged the award on three grounds:

  1. the award failed to deal with his case that the provisions in the shareholders’ agreement for the computation of goodwill should have been rectified to refer to the average of the company’s profits instead of an aggregate of its profits;
  2. the arbitrator failed to deal with the totality of the issues presented to him in relation to the dividend issue and/or exceeded his powers with regard to this issue; and
  3. the arbitrator dealt with quantum when the parties had agreed to defer the issue for another occasion.

Decision

In concluding that dismissal of all three challenges was the correct course of action, the court considered challenges for serious irregularity under s.68 AA 1996 and the relationship between such challenges and applications to the tribunal for corrections to awards under s.57.

Failure to deal with rectification

HHJ Russen QC held that the language of the award did deal with the rectification issue, albeit in a manner that was ambiguous and uncertain. Therefore not only had Mr Gracie failed to establish a serious irregularity, but his attempts to do so were barred by his failure to seek clarification or resolution of the ambiguity by applying to the tribunal under s. 57.

Failure to deal with the totality of the dividend issues

The court found that the arbitrator had considered the evidence on which Mr Gracie wished to rely on the dividend issues – a contemporaneous email - and had rejected the argument set out in it. Nor had the arbitrator exceeded his powers. Mr Gracie’s real complaint was that he felt that the arbitrator reached the wrong conclusion from this evidence, which did not support a s.68 challenge.

Failure to observe the agreed procedure

Based on a review of the arbitrator’s correspondence, the court found that it was only the quantum of Mr Gracie’s counterclaim that was deferred, not the quantum of Mrs Rose’s claim.

Comment

This decision is a reminder to arbitrators of the importance of drafting awards in unambiguous terms, particularly (and most obviously) with regard to the issues to be dealt with by the tribunal.

In addition, parties should not allege that certain issues have not been addressed, or that the arbitrator has exceeded his powers, when the real complaint is that the arbitrator was mistaken in his analysis.

The authors would like to acknowledge the assistance of Hamzah Butt, trainee at CMS London, in preparing this article.