Power of Court to Uphold Arbitral Award on Alternative Grounds

CTI Group Inc. v. Transclear SA (The Mary Nour), 2007 WL 3001775, [2007] EWHC 2340 (Queen’s Bench Div., Commercial Court)

This case arose out of the non-delivery by the sellers of a quantity of cement.  The sellers had argued that the contract had been frustrated by the actions of the Mexican cement cartel.  The Tribunal held that the contract had been frustrated but, if they were wrong on that, the buyers had a valid claim for damages.  The buyers appealed to the English High Court on the main finding of frustration of contract.  The appeal succeeded, the High Court finding the wrong legal test for frustration had been applied.

The sellers then applied to the judge to have the award upheld on the basis of an erroneous assessment of damages.  They argued that it was implicit in the Tribunal’s reasoning that it had found a breach of contract to be the effective cause of the buyers’ loss and that such loss was not too remote, whereas they should have held the contrary.  On appeal, the fundamental issue arose as to whether a court on an appeal under section 69 could address mixed questions of fact and law.  Although paragraph 12.3(3) of the Practice Direction to Part 62 of the Civil Procedure Rules enables a party to apply for an award to be upheld for alternative grounds, it does not expressly state that such applications should be confined to points of pure law; Field J held that any issue relied on in a section 69 hearing must be a point of law.  To allow other grounds, including matters such as causation and remoteness, would run counter to the policy of the 1996 Act by reopening elements of the arbitration.

The case is an important reminder of the jurisdiction of the court to uphold an arbitral award on alternative grounds, but also to uphold the line against an attempt to widen the scope of the court’s analysis in such cases.  The decision follows the English courts’ standard approach of keeping appeals of arbitral awards to matters of pure law.  To get past the courts’ natural inclination to avoid intervention in arbitration, appellants need to show a clear misapplication of the law by the arbitrators.