Serious irregularity under s.68 of the Arbitration Act 1996

MHA Advisory Ltd -v- Mr Shiran Wynter [2025] EWHC 2497 (Comm)

In dismissing a challenge to a final arbitration award for serious irregularity under s.68 of the Arbitration Act 1996 (AA 1996), the Court has acknowledged that the arbitrator could have expressed himself more clearly in the award but has rejected any suggestion that he had breached his statutory duties under the AA 1996 or had failed to deal with all the issues put to him.

The Court’s decision emphasises that there is a very high threshold for proving serious irregularity and that an application under s.68 should not be made until all other available recourse has been exhausted. In this case, an application should first have been made to the arbitrator pursuant to s.57 AA 1996 to clarify any ambiguity in the award.

The background facts

The claimant LLP is a firm of chartered accountants. The defendant was a member of the LLP until 31 July 2023. The terms of his membership were regulated by a Members Agreement (MA) to which he subscribed on or about 1 October 2020 by way of a deed of adherence (Deed of Adherence) when he was promoted to Associate Partner within the business operated by the LLP.

Clause 27 of the MA contained restraint of trade provisions (restrictive covenants) that purported to restrict the defendant from various activities for two years from the date he ceased to be a member.

Clause 30.1 provided for any disputes to be referred to arbitration by an arbitrator nominated by the President of the Chartered Institute of Arbitrators (CIArb).

After the defendant left the LLP, he solicited and dealt with clients of the LLP and sought to and did in fact recruit members of the LLP’s staff to join him at a new company (HWAEM) of which he was a director and shareholder and which competed directly with the LLP.

The claimant applied to the High Court for an injunction to restrain the defendant from breaching the restrictive covenants. The defendant gave an undertaking to the Court to adhere to the restrictive covenants. However, the defendant also made a request to the President of CIArb to appoint an arbitrator to adjudicate upon the question whether the restrictive covenants were enforceable restraints of trade and, if so, whether the defendant had acted, or threatened to act, in breach of them.

A key issue in the arbitration was whether the two-year restriction was too long and unreasonable. In the section of the arbitration award (Award) dealing with “the reasonableness or otherwise of the duration of the restrictions”, the arbitrator stated in relevant part:

“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.” (our emphasis)

The arbitrator concluded that the two-year restriction was too long and not reasonable. He also found as a fact that a restrictive covenant of much less far-reaching duration would have provided the claimant with adequate protection.

The s.68 challenge

The claimant applied to the Court pursuant to s.68 (2)(a)(failure to comply with general duty) and s.68(2)(d)(failure to deal with all issues) AA 1996, challenging the Award on the ground of serious irregularity resulting in substantial injustice.

The claimant alleged that the arbitrator had declined to adjudicate on the key conflict in the evidence before him (the issue of whether the two-year restriction was too long and unreasonable) and had, therefore, failed to deal with all the issues put before him. This was said to be a dereliction of his duty and a breach of his general duty under s.33 AA 1996 to act fairly and impartially between the parties. The key complaint seemed to be that the Award lacked sufficient reasons for the key decision and that there were only two sentences provided by way of analysis.

The claimant sought to have the Award set aside and for the dispute to be remitted to a differently constituted tribunal.

As was subsequently noted by the Court, the claimant did not apply to the arbitrator under s.57 AA 1996 to clarify or remove any ambiguity in the Award. The claimant argued that the irregularity it complained of was fundamental to the decision reached in the Award and was accordingly not capable of correction under s.57 AA 1996.

The defendant vigorously resisted the suggestion that there was any irregularity in the Award, let alone a serious one, and insisted that the claimant had misread or misunderstood the Award.

The Commercial Court decision

The Court dismissed the application. In the Court’s view, it was self-evident from the Award that the arbitrator had 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 expressed his conclusions on reasonableness very shortly. However, he indisputably did make a determination on the issue put before him and he clearly had considered the arguments made to him.

Specifically, the Court rejected the argument that by using the words “I am unable to decide” or “I am unable to make that distinction” in the Award, the arbitrator was declining to adjudicate on a conflict of evidence. Rather, the Court interpreted this as meaning that the arbitrator was unpersuaded by and unprepared to accept the claimant’s evidence on the issue.

In conclusion, the claimant’s contentions regarding what the arbitrator said in the Award 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 stated that the claimant could legitimately have asked the arbitrator to unpack further his conclusion that the two-year period in the restrictive covenants was not reasonably necessary to protect the claimant’s legitimate interests. It could have done so by making an application under s.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.

A s.68 application was only permitted where the party challenging an award had already exhausted all other available recourse. This was not the case here because no s.57 application had been made. Therefore, the s.68 application in this case was abusive of the right to bring an application of last resort.

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 not under s.68 but under s.69 AA 1996 (point of law). A decision to proceed in a certain way regarding the weight to be placed on evidence was a judicial decision. In the event the arbitrator had made the decision he was accused of making, he would not have been failing to comply with his duty under s.33 AA 1996; he would have been loyally complying with it but, arguably, getting the law wrong.

Comment

The Court will only intervene under s.68 in an extreme case where it needs to protect parties against the unfair conduct of the arbitration by the tribunal. The Court draws a distinction between a failure to deal with an issue as opposed to omitting to give reasons for rejecting it. Furthermore, 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.