English Commercial Court rules that a party must act "promptly" in raising a challenge to the effectiveness of arbitral proceedings, and rejects application for set aside of partial award

Summary

In Radisson Hotels APS Denmark v Hayat Otel Işletmeciliği Turizm Yatırım Ve Ticaret Anonim Şirketi [2023] EWHC 892 (Comm) the Commercial Court has rejected an application made by Radisson Hotels APS (Radisson) to set aside, on the grounds of serious irregularity, a partial arbitral award relating to a hotel mismanagement claim brought by Hayat Otel Işletmeciliği Turizm Yatırım Ve Ticaret Anonim Şirketi (Hayat).

Despite the severity of the irregularity in this case (ex parte arbitrator communication), the English Commercial Court concluded based on section 73(1) of the Arbitration Act 1996 (the "Act") that a party to an arbitration must act "promptly" if it considers that there are grounds on which it could challenge the effectiveness of the proceedings. If a party believes that it has grounds for objecting on the basis of serious irregularity, it should raise them as soon as it becomes aware rather than continue to participate in the proceedings without raising its objections. Given the decision to reject the challenge on grounds of delay, the Commercial Court did not consider the substance of the challenge.

Background

The case arose out of an ICC arbitration brought by Hayat against Radisson in relation to a claim relating to the management of a hotel in Turkey ("Arbitration"). The arbitral tribunal comprised the ICC-appointed presiding arbitrator (Mr Collins KC), the Radisson nominated co-arbitrator (Ms O'Sullivan KC), and the Hayat nominated co-arbitrator (Ms Timer). The partial award on liability and causation was issued by the arbitral tribunal on 23 March 2021.

It was common ground that:

• during the quantum phase, Radisson had meetings with Mr Önkal and Dr Durman, both of whom had been engaged previously by Hayat as an expert consultant and lawyer respectively. During those meetings, Radisson was made aware of ex parte communications between Mr Önkal and Ms Timer.
• By no later than 13 January 2022, Radisson and its legal counsel identified documents on a USB drive provided by Mr Önkal, reproducing the text of emails between Ms Timer and the rest of the arbitral tribunal. The USB drive contained evidence of two internal Tribunal emails chains being forwarded by Ms Timer to Mr Önkal in March 2019, one of which contained Ms O'Sullivan's initial impressions of the parties' cases. The native copies of these emails were obtained by 25 January 2022. In parallel, Radisson filed its Rejoinder on Quantum on 14 January 2022.

On 27 January 2022, Radisson applied to set aside the partial award pursuant to sections 68(a), (c) and (g) of the Act on the grounds of serious irregularity. Following the application, on 4 March 2022, Hayat disclosed further emails from April and May 2019 which showed that Mr Önkal had stated to a board member of Hayat's affiliate company that Ms Timer had returned from London and that they "have a lot to talk about" as well as showing that Ms Timer sent Mr Önkal an email attaching inter partes correspondence from Radisson to the Tribunal.

Decision

In her judgment, Dame Moulder DBE dismissed Radisson's application to set aside the arbitral award on the basis that Radisson had waived its right to challenge the award pursuant to section 73(1) of the Act by allowing the proceedings to continue without alerting the Tribunal and the other party to the serious irregularity.

Section 73 of the Act provides that "If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making […] any objection […] that the proceedings have been improperly conducted, […] he may not raise that objection later […] unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection."

By way of preliminary point, Radisson had argued that section 73 did not apply in relation to a challenge to a partial award that had already been issued. However, the judge rejected this submission on the basis that the "proceedings" continued until all aspects of the arbitration have been resolved. Otherwise, a party could carry on with the next phase of the arbitration and then strategically deploy an objection in order to derail the arbitration at its own convenience.

Citing the decision of Rustal Trading Ltd v Gill & Duffus SA [2000] C.L.C. 231, the judge emphasised that section 73 obliged Radisson to raise the objection promptly, as soon as it believed that it had the grounds for objecting. If Hayat demonstrated that Radisson participated in proceedings after the grounds for objection had arisen, the burden would rest with Radisson to show that it lacked the knowledge of (and could not with reasonable diligence have discovered) those grounds. The judge emphasised that "Section 73 is designed to ensure that a party who believes he has grounds for objecting on the basis of serious irregularity should raise that objection as soon as he is aware of it".

The judge held that Radisson knew it had grounds for objection when the emails showing the ex parte contact between Ms Timer and Mr Önkal were first provided to Radisson by no later than 13 January 2022 by Mr Önkal himself, a credible source. Radisson did not need the native versions of those emails (which were received by 25 January 2022) to have had a belief that it had grounds for objecting.

The emails showing the ex parte contact between Ms Timer and Mr Önkal were obtained by Radisson at the latest on 13 January 2022 and rather than raising the matter immediately, it had submitted its Rejoinder on Quantum to the Tribunal. On 21 January 2022, Radisson's legal counsel also wrote to the ICC Secretariat about the appointment of a new president and the timing of the next hearing. The judge therefore held that Radisson had continued participating for nearly two weeks despite having the belief that it had grounds for objection. She also noted that Radisson had not wanted to raise the issue immediately as that would have involved revealing its hand.

Comment

This case provides a reminder to parties to London-seated arbitration that objections must be raised in a timely manner before any further steps are taken in the proceedings in order to avoid losing the opportunity to challenge awards (even where the irregularity is very serious). Dame Clare Moulder DBE stressed that "The question is not when [the applicant] had the “cogent evidence” necessary to bring its s.68 challenge by that date but when it believed it had grounds for objecting whereupon it was obliged to raise the objection promptly".

Whilst ordinarily not part of award challenge proceedings, a party responding to a challenge application in similar circumstances should give thought to whether seeking disclosure and oral cross-examination to test the applicant's position would present opportunities to bolster its defence.

For more information, please contact Chris Parker KC, Partner, Jake Savile-Tucker, Senior Associate, or your usual Herbert Smith Freehills contact.

The authors would like to thank Csilla Cao for her assistance in preparing this blog post.