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BEYOND REASON

LEGAL

Under the Arbitration Act 1996, arbitrators in construction disputes (or any other disputes, for that matter) must provide reasons for their awards: unless, that is, the parties have agreed that they need not do so, writes Sarah McNally. Such agreements are unusual.

Having gone to the trouble and expense of an arbitration, the parties usually want to know why they have won or, more importantly, lost. They may, however, agree to forego their right of appeal, for brief reasons to be given separately, on the basis that they will not then refer to the reasons in any proceedings relating to the award. What happens if the parties then change their minds and want to use the reasons to challenge the award?

This issue arose in a recent shipping case, Tame Shipping v Easy Navigation (2004). The dispute concerned the sale of a ship and was conducted under the London Maritime Arbitration Small Claims Procedure, which includes an agreement to waive all rights of appeal. The arbitrator does not publish a reasoned award but instead gives brief, privileged reasons separately.

In maritime practice this means that the reasons will not be referred to in any proceedings relating to the award.

The unsuccessful buyers challenged the award under Section 68 of the Arbitration Act on the grounds of 'serious irregularity affecting the tribunal, the proceedings or the award', which, they said had caused 'substantial injustice'.

The buyers claimed that the arbitrator had based his decision on an argument of which they had no notice and he had disregarded an important item of evidence.

Of course, the buyers could only put forward these grounds if they could rely on the arbitrator's 'reasons' - without that information they had no material on which they could base their objection.

The sellers said that the reasons could be referred to only in exceptional circumstances (such as fraud).

The buyers argued for a broader interpretation of the London Maritime Arbitrators Association rules.

Ultimately, it was held that the arbitrator's reasons could be relied upon. While the parties were bound by their agreement, it did not preclude a court from looking at the reasons if appropriate - the court would simply decline to hold the party to the agreement.

An application under Section 68 can only be made if there are real grounds for saying that the irregularity is serious and the injustice substantial. The court can, and should, look at the arbitrator's reasons in any such case unless, for example, it is unnecessary or it is clear that the allegation is groundless. The court held that there was no evidence of any such irregularity.

It follows that, where serious challenges are made to an arbitrator's award under Section 68, the court is likely to look at the reasons given, even if the parties had previously agreed that they would not refer to them. This decision should not be taken as opening the door to challenges to arbitration awards. The courts still discourage what may be seen as appeals by the back door and the threshold remains a high one. It does show, however, that in some circumstances the courts may bend the rules to ensure that fair play is done - and that it is seen to be done.

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