One of the fundamental policy reasons behind the enactment of the Arbitration Act 1996 was the need to allow parties to resolve their disputes through arbitration and without judicial intervention.

However, the act provides for specific safeguards and necessary judicial intervention in the arbitration process. These are reflected, among other things, in section 67 (challenging the award: substantive jurisdiction), 68 (challenging the award: serious irregularity) and 69 (appeal on point of law). The scope of sections 67 and 68 came into question in the case of B and A [2010] EWHC 1626 (Comm).

A, B and C were all Spanish companies. B owned all of the shares in C. C was involved in the development and manufacture of equipment for computer-aided design. A was also involved in the business of computer-aided design.

A entered into a share purchase agreement (SPA) with B for the purchase of 100% of shares in C and the debt owed by C to B. The SPA was written in English but governed by Spanish law. It also provided for disputes to be referred to arbitration under the Rules of Arbitration of the International Chamber of Commerce (ICC). The seat of arbitration was London and the language of arbitration was English.

Following the purchase of the shares, A discovered that more than 10% of C’s turnover came from fraudulent transactions. It was also found that C had participated in customs and import tax fraud. A commenced arbitration proceedings against B for fraud and breach of express representations and warranties in the SPA. The majority of the arbitrators found, in the light of expert evidence on Spanish law, in favour of A and ordered that B indemnify A pursuant to the express provisions of the SPA. The dissenting arbitrator severely criticised the majority opinion on the basis that they had failed to properly consider the matter under Spanish law and therefore, in her opinion, their decision was illegal as a matter of Spanish law.

B challenged the award on the grounds that the majority of the arbitrators had failed to apply the chosen law (that is, Spanish law), contrary to their obligation under section 46 of the act. B argued that a breach of section 46(1) amounted to an excess of jurisdiction which may be challenged under section 67 or, alternatively, under section 68(2) (b) (the tribunal exceeding its powers).

In interpreting section 46 and its relationship with sections 67 and 68, Mr Justice Tomlinson argued that for a challenge under sections 67 and 68 to have success ‘…a conscious disregard of the provisions of the chosen law is a necessary but not a sufficient requirement’.

Finding that the majority of the arbitrators had carefully considered the provisions of Spanish law, Tomlinson J applied the House of Lords authority of Lesotho Highlands Development Authority v Impregilo SPA and others [2006] 1 AC 221, in which their lordships held that an error of law does not involve an excess of power under section 68(2) (b) of the act. Furthermore, Tomlinson J confirmed that the principle established in Lesotho did not exclude the misapplication of foreign law. Tomlinson explained: ‘Making an error as to the application of the applicable law can involve no excess of power under section 68(2)(b) since, as Lord Steyn explained, the concept of a failure by the tribunal to reach the "correct decision" as affording a ground for challenge under section 68 is wholly inimical to the scheme and purpose of the act.’

Tomlinson J rejected B’s purported change of the award on the ground of section 67. Challenges under section 67 are based on challenges of substantive jurisdiction. The term ‘substantive jurisdiction’ was clearly defined by section 30(1) of the act as including whether there is a valid arbitration agreement; whether the tribunal is properly constituted; and what matters have been submitted to arbitration in accordance with the arbitration agreement. For Tomlinson J, it was clear that an error in the application of the chosen law does not involve a lack of substantive jurisdiction as it is defined in the act – this was entirely consistent with Langley J’s approach in Peterson Farms Inc v C&M Farming Limited [2004] 1 Lloyd’s Rep 603. Therefore, a breach of section 46 could only be challenged under section 68(2)(b) of the act.

B and A clarifies and reinforces the following points:

  • Section 46 cannot be interpreted so as to allow a challenge of an award under section 67 of the act;
  • An error of law will not justify a challenge under section 68, and this extended regardless of whether the substantive law of the dispute was English law or foreign law;
  • A dissenting opinion of an arbitrator may be admissible as evidence in relation to procedural matters (see F Limited v M Limited [2009] 1 Lloyd’s Rep. 537). However, where the dissenting opinion goes beyond any evidence as to the issues and law given at the arbitration then a court will correctly refuse to have regard to such an opinion.

Masood Ahmed is a senior lecturer in law at Birmingham City University