Sonatrach v Statoil: backdoor attempt to challenge the tribunal's findings of fact receives short shrift from the English Court

In the case of La Societe pour la Recherche La Production Le Transport La Transformation et la Commercialisation des Hydrocarbures SPA v Statoil Natural Gas LLC [2014] EWHC 875 Comm, the Commercial Court considered an application under section 68 of the Arbitration Act 1996 (the "Act") by the claimant ("Sonatrach") to set aside an arbitration award.

Sonatrach argued that under section 68(2)(a) of the Act the tribunal had failed to comply with its general duty under section 33 of the Act by overlooking and mischaracterising two pieces of evidence and improperly using an administrative secretary. Sonatrach's application to set aside the Award for serious irregularity under section 68 of the Act was dismissed on the grounds that Sonatrach was attempting to contest findings of fact made by the tribunal.

Sonatrach also made an application to set aside the Order of Cooke J granting the defendant ("Statoil") permission under section 66 of the Act to enforce the award in the same manner as a judgment. Sonatrach challenged the award of interest at 8% under the Judgments Act 1838 on the damages and costs awarded by the tribunal from the date of the Order until payment. Sonatrach's application to set aside the Order of Cooke J was dismissed.

Background

The claimant, Sonatrach is the Algerian state oil company and the Statoil is a subsidiary of the Norwegian oil company Statoil ASA. The two parties entered into a number of contracts in 2008 (the "Agreements"). Under the Agreements, Sonatrach was under various obligations including to supply Statoil with liquefied natural gas and to purchase an equivalent amount of natural gas from Statoil. Sonatrach failed to carry out its obligations and accordingly Statoil issued a Request for Arbitration. Sonatrach disputed Statoil's claim on several grounds, but the ground most relevant to this application was that the Agreements were not effective, because a condition precedent had not been fulfilled. This condition precedent was that the Agreements were approved by the Algerian Government.

The Arbitration was conducted under the auspices of the International Chamber of Commerce. The Tribunal issued an arbitration award dated 30 April 2013 which rejected all of Sonatrach's grounds.

The application under s68 of the Act

Sonatrach's application to set aside the arbitration award was based on two grounds.

The first ground was that under section 68(2)(a) of the Act the Tribunal had: a) overlooked a critical piece of evidence in the form of a letter from Mr Hanifi, the Director-General of Hydrocarbons of the Algerian Ministry of Energy and Mining and that b) the Tribunal had mischaracterised the evidence of two of Statoil's witnesses, Mr Gunnar Freberg and Mr Philippe Mathieu.

The second ground was the alleged improper use by the Tribunal of an administrative secretary. This ground was not the subject of any specific submissions, although it was not formally abandoned.

In his consideration of the first ground, Flaux J recognised that a number of cases have shown that evaluation of evidence is a matter for the tribunal. It is clear from a number of cases that an application under section 68 of the Act will only be successful in extreme cases. The focus when considering such applications is due process and not whether the tribunal 'got it right'. Sonatrach relied on the case, Arduina Holdings BV v Celtic Resources Holdings Plc [2006] EWHC 3155 (Comm), which suggested that the court may interfere under section 68 of the Act in exceptional cases where the tribunal has reached the wrong findings of fact. It was suggested that such an exceptional case could be where "an arbitrator genuinely overlooked evidence that really mattered, or got the wrong end of the stick in misunderstanding it."

The second ground alleged that the Tribunal improperly delegated authority to its administrative secretary or impermissibly allowed her to participate in its deliberations. The Tribunal had told both parties that they were using the administrative secretary to help prepare notes which would assist their deliberations only, and to raise any objections if they had any. No such objections were raised. Sonatrach felt however that the administrative secretary had gone outside of her agreed remit and had become involved in the deliberations.

Application to set aside the Order of Cooke J

The Order of Cooke J awarded interest at 8% under the Judgments Act 1838 on the outstanding damages and costs awarded by the Tribunal from the date of the Order until payment. Sonatrach challenged this Order on the grounds that the Tribunal had not awarded post-award interest under section 49(4) of the Act and that awarding interest was contrary to this section.

Decision

While he accepted that hypothetical, exceptional cases might exist where section 68 of the Act would be engaged in this type of situation, Flaux J dismissed the first ground judging that "it was entirely a matter for the tribunal what weight it gave to [the letter]" and that it was "far more likely that the tribunal did not refer specifically to the letter because it did not consider the letter of any weight than that the tribunal overlooked it." Flaux J also concluded that there was "no question of the tribunal having mischaracterised the evidence".

Flaux J dismissed the second ground unequivocally on the basis that it was "a very serious allegation which [was] completely without merit and which should never have been made".

Flaux J dismissed the application to set aside the Order of Cooke J, differentiating the situation where a court is being asked to award interest post-award but pre-judgment, and the position where judgment on an award has been entered under section 66 of the Act. A Judgment on an award has the same characteristics as any other judgment of the court and interest will run under the Judgments Act 1838 from the date of the judgment.

Comment

Flaux J's judgment reiterates that section 68 of the Act cannot and should not be used to challenge findings of fact made by a tribunal. Section 68 of the Act was designed to prevent a serious irregularity from causing substantial injustice to a party. It is "a long-stop available only in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected".  Flaux J expressed frustration at applications under section 68 of the Act which seek to challenge findings of fact and concluded regarding this application that "The reality is that this is yet another case, of which there are already far too many…where a party is seeking to use section 68 to challenge findings of fact made by the tribunal."

It is clear from this judgment that the courts are maintaining a very high threshold for challenging an award under the grounds of serious irregularity. Therefore, parties considering such an application should think carefully before they make any challenges under section 68 of the Act, particularly if the application could be perceived to be a tactical move.

The use of administrative secretaries has become a contentious issue in international arbitration with concerns relating to the independence of an administrative secretary, the tasks delegated to them and the fear that an administrative secretary could become a fourth tribunal member. However, this case shows that an unsubstantiated allegation purely based on the use of such an administrative secretary will be given very short shrift, particularly where the scope of that administrative secretary's involvement has been clearly delineated.

For more information, please contact Craig Tevendale, Partner, Vanessa Naish, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.