Court confirms requirement to make timely objections extends to partial awards

Secret communications give rise to s.68 challenge

In arbitration proceedings, Hayat, the owner of a Turkish hotel, alleged that Radisson, the hotel management group, had mismanaged its hotel. The tribunal rendered a partial award on liability in favour of Hayat. The proceedings moved to the quantum phase.

Radisson subsequently became aware of ex parte communications between Hayat’s representative and one of the tribunal members. The relevant timeline is as follows:

• In March to May 2019, there were ex parte communications between Hayat’s representative and one of the tribunal members.

• In March 2021, the partial award on liability was published.

• In September and November 2021, Radisson held meetings/calls with an ex-employee of Hayat’s parent company, Dr Durman. He alleged that Hayat had been engaged in ex parte communications.

• Dr Durman put Radisson in contact with Mr Önkal, who was engaged by Hayat in 2019, and had been involved in the relevant communications. Meetings were held in September/November 2021.

• Mr Önkal provided Radisson with a USB drive of documents by no later than 4 January 2022. By 13 January 2022, Radisson discovered that the drive contained confidential tribunal deliberations and ex parte contact between a tribunal member and Mr Önkal.

• Subsequently, Radisson took steps in pursuance of the quantum phase of the arbitration, including submitting a rejoinder on quantum on 14 January 2022.

• By 25 January 2022, native copies of the correspondence were obtained by Radisson.

• On 27 January 2022, Radisson issued an application under s.68 of the Arbitration Act 1996 (AA 1996) to set aside the partial award on the basis of a serious irregularity.

• On 4 May 2022, Hayat disclosed further ex parte communications.

S.73(1) of the AA 1996

The primary matter for the Commercial Court in this case was the application of s.73(1) of the AA 1996. S.73(1) provides that if a party takes part in arbitral proceedings without raising an objection regarding an irregularity affecting the tribunal or the proceedings, he may not raise that objection subsequently. That is unless, at the time of his participation, he did not know and could not with reasonable diligence have discovered the grounds for the objection.

The effect of this provision is that a party to an arbitration must act “promptly” if he considers that there are grounds on which he could challenge the effectiveness of the proceedings. A party may not allow arbitral proceedings to continue without alerting the tribunal and the other party to a serious irregularity. 

Use it or lose it – s.68 challenge barred for failing to make timely objection

The Court dismissed the application.

Radisson had failed to show that it did not have knowledge for the purposes of s.73 for objecting at the time it participated in the arbitration as it had:

• become aware of the grounds for challenge by 13 January 2022 at the latest and may in fact have had knowledge of the grounds by 4 January 2022; and yet

• continued to participate in the arbitration proceedings by taking substantive steps in those proceedings, rather than raising the matter immediately, for strategic reasons.

Radisson had also failed to discharge its burden to show that it could not with reasonable diligence have discovered the grounds of objection. The Court was influenced by the lack of evidence in respect of the meetings with Dr Durman and Mr Önkal in November 2021 and that Radisson decided in November 2021 not to instruct an investigation firm to investigate the reports of ex parte contact.

In coming to its decision, the Court clarified several important points. 

First, s.73 will apply until all aspects of the arbitration have been resolved. It applies even though a “final” partial award has been issued and the relevant participation is in a subsequent phase of the arbitration. Otherwise, a party could carry on to the quantum phase and keep an objection “up their sleeves”. 

Second, the grounds for an objection should be broadly construed. In this case, the grounds were of bias and lack of disclosure arising from the ex parte communications. The Court did not consider that the separate emails amounted to individual grounds. As such, it did not follow that Radisson could only have discovered the grounds when all of the ex parte emails were disclosed.

Third, the question is not when a party has “cogent evidence” to bring a s.68 challenge, but when a party believes it has grounds for objecting. Where it believes it has such grounds, it is obliged to raise the objection promptly. In this case, waiting for 14 days from the latest date that it became aware of the grounds for challenge (13 January) to raise the objection did not meet the test.

Comment

The judgment highlights that the court will readily use s.73 to preclude parties from keeping an objection in reserve in order to derail proceedings at a later date. Where there is a suspicion of an irregularity in arbitral proceedings, it is necessary for the innocent party to investigate the event and pursue a challenge promptly, potentially even if its investigations are incomplete. The court will not accept delay, particularly where the delay appears to be a calculated step.

A party that becomes aware of an irregularity should keep clear and detailed records of their investigation into the potential ground of objection. They should also preserve documents in relation to the investigation. Failure to do so may go against the party in overcoming its burden to prove that it could not with reasonable diligence have discovered the grounds for the objection.

Judgment: Radisson v Hayat