UK: Rare Successful Challenge To Arbitral Award On Grounds Of Serious Irregularity

Last Updated: 12 December 2017
Article by Peter Hirst

Oldham v QBE Insurance (Europe) Ltd [2017] EWHC 3045 (Comm)

In a decision of the new Business & Property Courts, Mr Justice Popplewell heard applications under section 68 of the Arbitration Act 1996 (AA 1996) (serious irregularity) and AA 1996, s 69 (appeal on a point of law) in respect of an arbitral award. The AA 1996, s 69 appeal concerned a reimbursement of monies paid out under an insurance policy which the arbitrator found did not provide coverage. Popplewell J found no error of law and upheld the award on this point. The challenges under AA 1996, s 68 were, however, successful as the arbitrator had erred in ordering costs and a payment on account of costs in favour of the insurer without giving the insured a fair opportunity to present his arguments. Here we look at the lessons to be learnt from the decision.

Background

Mr Oldham had been one of three joint administrators of a company, MK Airlines. The liquidators of MK Airlines brought High Court proceedings against Mr Oldham (the High Court proceedings) which resulted in a judgment against him for in excess of £1 million. That judgment is currently under appeal.

Mr Oldham's professional indemnity insurers were QBE Insurance (Europe) Ltd (QBE) under a policy covering claims made for 12 months at 19 February 2014 (the Policy). The Policy was subject to minimum indemnity requirements (the Minimum Terms). The Policy stated that the Minimum Terms were to take precedence over the Policy terms in the event of a conflict in which the Minimum Terms were more favourable to the insured.

QBE disputed that the Policy covered Mr Oldham's potential liability in the High Court proceedings. QBE did pay Mr Oldham's costs of the High Court proceedings pending resolution of the coverage dispute as required by the Minimum Terms.

The dispute between Mr Oldham and QBE was referred to arbitration. The arbitrator held that Mr Oldham was not covered by the Policy because the claim had been made against him or notified to him prior to inception. Mr Oldham has not challenged that part of the award.

The award also provided that:

  • QBE was entitled to reimbursement of the defence costs of the High Court proceedings - Mr Oldham appealed this under AA 1996, s 69 on grounds that as a matter of law QBE had no entitlement under the terms of the Policy to recover such costs. Alternatively, under AA 1996, s 68 that the arbitrator did not give Mr Oldham a fair opportunity to address the question of such entitlement
  • QBE was entitled to the costs of the arbitration - Mr Oldham appealed this under AA 1996, s 68 on grounds that he was not given a reasonable opportunity to address the argument as to why this order should not have been made
  • Mr Oldham should pay £70,000 on account of costs within 28 days of the award - Mr Oldham challenged this under AA 1996 s68 on grounds that he was not given a reasonable opportunity to address the argument.

Judgment

Mr Justice Popplewell considered:

  • an application for adjournment – this application was dismissed
  • an application for extension of time to make the AA 1996, s 68 applications – the extension was granted for the reasons set out below
  • challenges to the award under AA 1996, s 68
  • an application for permission to appeal under s69. QBE did not resist this application as it wished the point to be addressed as one of general importance

Extension of time

Relying on the principles set out in Terna v Bahrain Popplewell J looked at:

  • the length of the delay
  • whether the party who permitted the time limit to expire and subsequently delayed was acting reasonably in the circumstances in doing so
  • whether the respondent to the application or the arbitrator caused or contributed to the delay
  • whether the respondent to the application would by reason of the delay suffer irremediable prejudice in addition to the mere loss of time if the application were permitted to proceed
  • whether the application has continued during the period of the delay
  • the strength of the application
  • whether in the broadest sense it would be unfair to the applicant for him to be denied the opportunity of having the application determined

Popplewell J also considered:

  • the length of delay must be judged against the yardstick of the 28 days for challenge/appeal in AA 1996. A delay measured in days is significant, a delay measured in weeks or months is substantial
  • an investigation into the reasons for the delay and evidence of the reasons
  • the difference between an intentional choice to delay the application and a good explanation for the failure
  • the strength of the challenge application will depend upon the procedural circumstances in which the issue arises; an apparently strong case on the merits will assist the application

Having considered the strength of the case in particular, Popplewell J granted the extension of time.

Recovery of defence costs

Popplewell J dismissed the appeal against the arbitrator's award that Mr Oldham repay the High Court proceedings defence costs paid by QBE on Mr Oldham's behalf.

He looked closely at the wording of the Policy and the Minimum Terms. Following Wood v Capita he noted the approach to 'ascertain the objective meaning of the language which the parties have chosen to express their agreement' and that 'where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which is more consistent with business common sense in which is an iterative process.' (AIG Europe v Woodman)

On the facts, he found that the arbitrator had made no error in his conclusion on QBE's rights to repayment of the defence costs although for different reasons from those the arbitrator expressed.

Costs of the arbitration

QBE served submissions on costs after the award had been rendered and Mr Oldham was given a number of extensions to respond. However, before expiry of the latest extension, the arbitrator issued Part II of his award, finding that the insurer was entitled to reimbursement of the defence costs and ordered Mr Oldham to make a payment on account of costs within 28 days of the award.

Popplewell J found serious irregularity giving rise to substantial injustice in that Mr Oldham was deprived of a fair opportunity to advance his argument against a costs order in QBE's favour. He remitted the award to the arbitrator on this point.

Mr Oldham would have wanted to argue that no costs order should be made until after the High Court proceedings had been concluded but Popplewell J found he was not given the opportunity to advance this argument.

The judge held that although QBE's contention that Mr Oldham's argument was a bad one may well have persuaded the arbitrator, it was one which the arbitrator may have accepted and, as such, Mr Oldham was entitled to have his chosen tribunal determine the point.

Payment on account of costs

Having found serious irregularity on the order for costs, it followed that the same applied to the order for a payment on account. In addition, the arbitrator's order for time to respond on the payment on account but proceedings without waiting for his submissions was a breach of AA 1996, s 33 (the tribunal's duty of fairness and impartiality between the parties).

Lessons learnt

It is important to ensure that costs are clearly pleaded by both parties. While the award in this dispute will now be remitted to the arbitrator, it is usual for costs to follow the event and one would therefore expect the winning party, QBE, be awarded its costs of the arbitration regardless of the eventual outcome of other proceedings to which the insured is party.

It is also a salutary reminder that the 28-day period for challenges and appeals under AA 1996 runs very quickly, and on receipt of an award parties must either make their application or seek an immediate extension of time by consent or from the court if, for good reasons, the challenge/appeal cannot be made straight away.

As QBE noted in not resisting permission to appeal, the interpretation of the wording on the Policy and Minimum Terms are of general importance to the insurance market, with a focus on contractual construction which accords with business common sense.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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