A Rare Challenge for Admitted Mistakes Under the Arbitration Act 1996

Mistakes occur even in the practices of experienced arbitrators, which is what happened in Doglemor Trade and Others v Caledor Consulting and Others [2020] EWHC 3342 (Comm). On 4 December 2020, the Commercial Court ordered – in what is understood to be a first under section 68(2)(i) of the Arbitration Act 1996 (the AA 1996) – an arbitral award to be remitted to a tribunal of arbitrators (the Tribunal) because an admitted mistake in the award had caused substantial injustice to the Claimant (Doglemor).

Background

The case concerned a Call Option Deed that conferred a right on Caledor (the First Defendant) to acquire 30% of the shares in a company owned by Doglemor at a price of US$60 million. The Call Option Deed was governed by English law and contained a London Court of International Arbitration (LCIA) arbitration clause with London as its seat.

In 2018, Caledor initiated arbitration proceedings against Doglemor seeking damages on the basis that the Call Option Deed had been repudiated leading to its termination. Doglemor admitted repudiation and termination of the Call Option Deed and so the only substantive issue for the Tribunal to determine was the quantification of Caledor’s losses.

On 21 January 2020, the Tribunal issued an award in Caledor’s favor for damages in the sum of US$58 million. In computing the level of damages, the arbitral panel had, however, added a sum relating to historic tax liabilities instead of subtracting it. If the amount had been subtracted as it ought to have been, based on the Tribunal’s other findings, damages would have been awarded in the sum of US$4 million.

Pursuant to Article 27.1 of the 2014 LCIA Rules, Doglemor made an application asking the Tribunal to correct the mistake and to make consequential corrections to the resulting damages figure. In response, the Tribunal admitted the error but determined that the requested correction was not justified, for the following reasons:

The application that Doglemor had made was not only to correct the single input figure for tax liabilities but rather the total figure awarded by way of damage

Making the correction sought would not give effect to the Tribunal’s true intentions of awarding substantial damages to Caledor

The award of damages provided reasonable compensation which neither over-compensated nor under-compensated Caledor

It could not be assumed that all other inputs into the Tribunal’s calculations other than the erroneous entry relating to the tax liabilities should be treated as “cast in stone” and would have remained unaltered had it not made the mistake.

After the application was rejected by the Tribunal, Doglemor issued a claim in the High Court on the grounds that the award constituted a serious irregularity falling under the following sections of the AA 1996 and that the serious irregularity would cause serious injustice to it:

Section 68 (2)(a): failure by the Tribunal to comply with section 33 (general duty of a Tribunal)
Section 68(2)(c): failure by the Tribunal to conduct the proceedings in accordance with the procedure agreed by the parties
Section 68(2)(i): any irregularity in the conduct of the proceedings or in the award which is admitted by the Tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award.
Decision

The Court held that the Tribunal’s error constituted a serious irregularity that had caused substantial injustice to Doglemor. The Court therefore ordered the award to be remitted to the Tribunal for reconsideration. In reaching its decision, the Court held that:

Section 68(2)(i) of the AA 1996 covers the type of admitted mistake that had arisen in this case. It was not an error of fact or law. The Tribunal’s mistake fell into a different category, being an error of implementation, by which the Tribunal did not do what it had stated on the face of its award it had intended to do (subtracting rather than adding the tax liabilities).

The Tribunal’s response to Doglemor’s application, although not part of the award, could be relied upon by Doglemor to establish the “admitted” irregularity in line with the wording of section 68(2)(i) of the AA 1996. The Tribunal’s response constituted admissible evidence as to both the mistake and its consequences for the award
Owing to the fact the admitted mistake fell within section 68(2)(i) of the AA 1996, there was no need for the Court to address Doglemor’s case on sections 68(2)(a) and 68(2)(c) of the AA 1996.

The serious irregularity was one which under section 68(2) of the AA 1996 had caused or would cause substantial injustice to Doglemor because there was an enforceable award that contained a computation mistake which had led to a significant increase in the amount of the award.

If the Tribunal had taken the opportunity to address the computation mistake, it might well have resulted in a significantly different award.

Commentary

This judgment highlights the Court’s approach to the interpretation of section 68(2)(i) of the AA 1996 (irregularity in the award). The key points set out above provide a helpful steer for practitioners in considering whether or not to apply to the Court to remit an arbitral award on the basis of an admitted mistake. The Court makes clear in its reasoning that section 68(2)(i) of the AA 1996 is reflective of the fact that there has long been jurisdiction to remit an award in the case of an admitted mistake. The important and limiting factor in this section of the AA 1996 is, however, that the Tribunal must admit the mistake. It is not for the Court to identify it; the Courts are not thereby interfering with the arbitral process.