It was decided that the Arbitrator could have expressed himself more clearly but that it would be patently wrong to suggest he was in dereliction of his duty. This case reaffirms the high threshold to be satisfied for proving serious irregularity and that available recourse should first be exhausted before bringing an application under section 68 AA 1996.
Background
The previous Claimant, MacIntyre Hudson LLP (the LLP), was substituted by a consent order. The Defendant (Mr Wynter) was, until 31 July 2023, a member of the LLP. Mr Wynter’s relationship with the LLP was regulated by a Members Agreement (the Agreement).
Mr Wynter subscribed to the terms of the Agreement around 1 October 2020 by a deed of adherence. Mr Wynter was promoted within the business and was described as an “Associate Partner”.
The Agreement contained restrictions purporting to restrict Mr Wynter from various activities two years from the date he ceased to be a member of the LLP (the Covenants). The Agreement contained a dispute resolution clause which allowed the parties to nominate an Arbitrator to provide a final and binding decision in the event of a dispute.
After 31 July 2023, being the date Mr Wynter ceased to be a member of the LLP, he solicited and dealt with the LLP’s clients. Mr Wynter also sought to and recruited staff members of the LLP to join his new company, which engaged directly in competition with the LLP. In response, the LLP applied for an injunction restraining Mr Wynter from continuing with his actions. Mr Wynter offered undertakings to the Court to adhere with the Covenants, save for in respect of a specific list of clients and staff.
The LLP and Mr Wynter then made a request to the President of CIArb to appoint an Arbitrator to adjudicate upon the question whether the Covenants were enforceable restraints of trade and, if so, whether Mr Wynter had acted, or threatened to act, in breach of them.
The two-year length of the Covenants and their reasonableness were fundamental issues in the arbitration. The Arbitrator addressed this in the section of the award headed “The reasonableness or otherwise of the Duration of the Restrictions”. The relevant parts of the award are as follows:
- 292. It is common ground that the tribunal’s task is now to decide whether the 2-year period in the Restrictions is reasonable. I am unable to decide whether, for example, a shorter period might be reasonable and hence enforceable. It is also common ground that I make the above decision in my discretion.
- 295.…With regard to the stickiness or otherwise of the client relationships and the length of the audit cycle, there is a conflict on the evidence and I am unable to decide that the 2 year Restrictions are reasonable on that basis, with the burden being, as agreed, on the Claimant to establish that the Restrictions are reasonable. It is said that the Claimant and HWAEM are different firms but, on the evidence before me, I am unable to make that distinction.
The Arbitrator decided that the Covenant length of two years was too long and not reasonable. The Arbitrator also found that a much fair less reaching duration would have provided adequate protection to the Claimant.
The section 68 AA 1996 challenge
The Court has a jurisdiction to intervene where there has been serious irregularity. The Claimant’s position as regards serious irregularity was that:
- The reasonableness of the duration of the restrictions was a key issue and there were two sentences in the Award provided to support the analysis;
- The Tribunal declined to adjudicate upon the key conflict in evidence as to reasonableness of the duration of the restrictions relating to client solicitation, interference and dealing; and
- There was no engagement with or conclusion reached as to the evidence justifying the duration of the restrictions relating to staff
The Claimant’s core complaint appeared to be that there were only two sentences provided by way of analysis to reach the conclusion in the Award. This was said to evidence a fundamental dereliction of duty and breach a general duty under section 33 AA 1996 to act fairly and impartially between the parties.
It was the Claimant’s contention that the only remedy possible was to set aside the Award and remit the dispute to a differently constituted tribunal.
Before issuing its section 68 application, the LLP did not apply to the Arbitrator to clarify or remove any ambiguity in the Award under section 57 AA 1996. The LLP submitted that it had no available recourse under section 57 AA 1996 as the irregularity in issue was fundamental to the decision reached in the Award. It was the Claimant’s position, therefore, the Award was not capable of correction under section 57 AA 1996.
Mr Wynter’s position was that the LLP simply misread or misunderstood the Award. Mr Wynter resisted the suggestion that there was any irregularity, let alone a serious one.
The Commercial Court decision
The High Court dismissed the application made under section 68 AA 1996.
In the Court’s analysis, it stated that it was self-evident that the Arbitrator turned his mind to every fact presented to him and every submission made: he recorded all of them, including the arguments made by each party regarding whether the two-year period was reasonable or not.
The Court acknowledged that the Arbitrator’s two-line conclusion on reasonableness of the Covenants was very short. But that the Arbitrator’s conclusion on the question of reasonableness was a matter for his discretion. The Court held it was an indisputable fact that the Arbitrator made a determination on the issue put before him and he clearly considered the arguments made to him.
The Court did not accept that the Arbitrator’s phrase “I am unable to decide” (highlighted above) could reasonably be read as amounting to an acknowledgment that he was declining to adjudicate upon a conflict of evidence. The Court rejected the LLP’s interpretation of the Arbitrator’s language and was not prepared to accept the LLP’s evidence as decisive of the reasonableness of the two-year period.
The Court also stated that even if the arbitrator had made his decision as to reasonableness entirely on the basis that the Claimant had failed to prove its case, such a decision would be open to challenge under section 69 AA 1996 (appeal on point of law), not under section 68 AA 1996. If the Arbitrator had made the decision he was accused of making, he would not have been failing to comply with his general duty under Section 33 AA 1996; he would have been complying with it but, arguably, getting the law wrong under section 69.
The Court concluded that the LLPs contentions were simply wrong. The Arbitrator was asked by the parties to proceed at speed to reach a conclusion on the questions put to him and he gave a clear answer: the duration of the restrictions was not reasonable in all the circumstances.
The Court held that the LLP could have legitimately asked the Arbitrator to unpack further his conclusion that the two-year period in the Covenants was not reasonably necessary to protect the LLP’s legitimate interests. The LLP could have done so by making an application under section 57 AA 1996 for clarification of the Award. If clarification had been sought and provided, then the assertion of irregularity could not have been made.
It was open to the LLP to exhaust alternative avenues, in the form of a section 57 AA 1996 application. An application under section 68 AA 1996 exists to offer protection as a last resort in the extreme event an arbitral tribunal has gone so wrong that justice cries out for the Court to intervene. Therefore, the section 68 AA 1996 application in this case was abusive of the right to bring an application of last resort.
Key takeaways
There are key takeaways following this decision which applicants and respondents should note:
- Last resort: section 68 AA 1996 applications should be a last resort. The Court will only intervene under section 68 in an extreme event having regard to the very high threshold to satisfy.
- Clarification: before launching an application to challenge an award, the Court will expect available recourse to be pursued first. Such recourse, if necessary, will include clarifying an award under section 57 AA 1996.
- Award content: a tribunal does not have to deal with every argument on every point raised, provided that it makes a determination on the issues put before it and considers the arguments made to it. It should not be fatal if an award contains shorter reasoning on an issue.
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