This case involves an arbitration award which was made in favour of the defendants Caledor Consulting (‘CC’). The final award was calculated in error resulting in a substantially inflated sum. The mistake was admitted and Doglemor Trade made an application to the Tribunal to correct the error. The application was unsuccessful so they turned to the High Court (Commercial Division) to intervene which is what makes this case unusual.
The background to the case involves Mr.Bogatikov (‘B’), a Russian citizen, who set up a Russian haulage and logistics business in 2001 , the Business Lines Group. B owned 100% shares in Doglemor Trading which in turn owned 100% shares in D L Management which was the holding company for Business Lines Group. Together they are referred to collectively as the Doglemor Parties (‘DP’) in the Judgement. Business Lines Group served the Russian domestic market and had some 20,000 employees and 4000 vehicles, making it one of the largest players in the LTF (less than full truckload) market.
Mr.Khabarov (‘K’) is also a Russian citizen and businessman, owning 75% in the defendant CC. He had joined Business Lines Group in 2014 to fulfill senior managerial functions. Part of the understanding was that he would have an option to acquire a stake in the business (30% at a cost of US$60m) and this was granted by a Call Option Deed in February 2015. The deed had a London Court of International Arbitration (‘LCIA‘) clause and was governed by English law. The two Russian gentlemen had a dispute in August 2017 and K was excluded from the Group. K argued that the Call Option had been repudiated and initiated an arbitration seeking a declaration and damages for breach of the Deed. In its defence submissions, DP admitted repudiation and termination of the Call Option Deed. With liability not in issue, the quantum of damages for CC’s consequent loss was the only substantive issue to determine.
In January 2020 the Tribunal issued an award of US$58m to CC. However, it emerged that in computing the award, the arbitral panel had added a sum relating to historic tax liabilities instead of subtracting it. Had they used the correct calculation the amount awarded should have been US$4m.
Experience is simply the name we give our mistakes.”
Oscar Wilde
DP applied (under Article 27(1) LCIA Rules) to the Tribunal requesting that they correct the error and the resultant damages figure. Despite the fact that the Tribunal admitted the error they did not feel that the correction was justified for a number of reasons and rejected the application. They felt that correcting the error without also revisiting other aspects of the claim that were potentially affected by it would result in a different award from that which they had intended to make, and would be an unjust award. It had adopted “a more holistic and more subjective, evaluative exercise’ when assessing damages and that the original award neither over-compensated nor under-compensated CC. Making the mathematical correction sought would not give effect to the Tribunal’s true intentions of awarding substantial damages to CC. The Tribunal was of the ‘clear view” that notwithstanding the error a correction was “not justified“.
Undeterred, DP turned to the Commercial Division of the High Court, and challenged the decision under the English Arbitration Act 1996. Section 68(2)(i) of that Act provides that an arbitral award may be challenged if there has been “any irregularity in the conduct of the proceedings or in the award which is admitted by the Tribunal or by an arbitral or other institution….” The serious irregularity should also cause “substantial injustice“.
The Court held that s.68 (2)(i) covered the type of admitted mistake that had occurred here. It was not an error of fact or law- it was an error of implementation. The Tribunal had not done what it had stated on the face of its award that it had intended to do (i.e. it had subtracted rather than added the tax liabilities).
The Tribunal had effectively admitted the irregularity by responding to DP’s application, and this constituted admissible evidence as to both the mistake and its consequences. This also satisfied the requirements of the section.
The Court found the serious irregularity would cause “substantial injustice” to DP as there was an enforceable award containing a mathematical mistake resulting in a significantly higher award than would otherwise be the case. If the Tribunal had corrected the error, it might well have resulted in a significantly different award.
On the basis of these findings the Court ordered the award to be remitted to the Tribunal for reconsideration.
This is understood to be the first arbitral award to be remitted under this section of the Arbitration Act 1996 and shows the remedies open to parties in these unusual circumstances, and where there has been an admitted and serious mistake in an award. The Courts are reluctant to interfere with the process of arbitration which is intended to be a less adversarial and more final procedure than a court action. Where a mistake in an award is admitted by a Tribunal however, there is no interference with the arbitral process, and the Court’s intervention supports the overall process.
Link: Doglemor Trade & others v Caledor Consulting & others [2020] EWHC 3342 (Comm)
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