knowledge 25 June 2017 |

Fail to Turn Up to an Arbitration Hearing at your Peril

An interesting recent example is Hoban v Coughlan.¹ The crucial issue was whether the arbitrator’s decision to proceed with the hearing though one party did not attend was reasonable.  At first look, doing so must be unfair, because the absent party’s opponent is given an open goal.  However, if it can be inferred in the circumstances that the party who stayed away did so deliberately or strategically, then that party has accepted the consequences, there is no unfairness and the courts will uphold the arbitrator’s handling of the matter, as the court did in this case. 

In Hoban, the applicant had given a personal guarantee of leases and lease agreements entered by two companies connected with him. The respondents had called on the guarantee. The demand was unmet and they referred to arbitration. The arbitrator was nominated by the President of the Law Society in default of agreement. The nominated arbitrator wrote to the applicant several times: (a) advising of his nomination; (b) saying that if he did not hear from the applicant within a week, he proposed to accept the appointment and to issue preliminary directions; (c) confirming that he was accepting the appointment and would issue preliminary directions, and (d) advising of the time and place for the preliminary meeting. He received no response from the applicant, held the preliminary meeting and issued the directions to both parties.  

After some months, new solicitors for the applicant contacted the arbitrator to seek relevant documents. These were provided. The arbitrator wrote to the applicant’s solicitors on some further occasions: (a) noting that the time for the delivery of points of defence had expired and asking to hear from them; (b) allowing a final extension of time for delivery of points of defence; (c) noting that he had received neither points of defence nor an application for further time to deliver them and fixing an oral hearing. The arbitrator did not receive any substantive response, and wrote again asking for confirmation whether the applicant would attend or be represented at the oral hearing. 

The evening before the oral hearing, the applicant’s solicitor phoned the arbitrator and asked to adjourn the hearing. The arbitrator advised that any such request had to be made on notice to the respondents’ solicitor. When the oral hearing began, the arbitrator confirmed that the applicant's solicitor had phoned him requesting adjournment of the hearing. Counsel for the respondent confirmed that the applicant's solicitor had also phoned the respondents' solicitor, who refused to agree the request to adjourn. No application for an adjournment was made by the applicant to the arbitrator in the presence of the respondents. The arbitrator decided not to adjourn the hearing and the matter proceeded. The arbitrator heard the respondents’ evidence and submissions. The arbitrator later published his award. 

The application to set aside the award was on the grounds in Article 34(2)(a)(ii) of the Model Law that the applicant “was not given proper notice of the appointment of an arbitrator or of the proceedings or was otherwise unable to present his case ”. McGovern J in the Commercial Court rejected this argument, noting that the arbitrator had carefully ensured that the applicant or his solicitor was notified of each step, even though he was not getting any responses.  He noted that the arbitrator was entitled to proceed in the applicant’s absence where the applicant knew about the hearing under Article 25(c) of the Model Law and the Supreme Court decision in  Grangeford Structures Ltd (in liquidation) v SH Ltd.²  The court noted Canadian authority³ that control of actions in the absence of a party under the Model Law is to protect a party from egregious and injudicious conduct by an arbitrator and not to protect a party from its own failures or strategic choices. 

The applicant also claimed that the arbitrator had not given sufficient reasons for his award.  McGovern J also rejected this argument, relying on the statement by Donaldson LJ in Bremer Handelegesellschaft GmbH v Westzucker GmbH (No. 2)⁴  that “All that is necessary is that the arbitrators should set out what, on their view of the evidence, did or did not happen and should explain succinctly why, in the light of what happened, that they have reached their decision and what that decision is. That is all that is meant by a reasoned award…”

The court held that even though the hearing was uncontested, the arbitrator had received evidence of all matters requiring proof, and the written award was a reasoned award in compliance with the requirement of Article 31(2) of the Model Law. Therefore the award should stand.  

When a party is brought to arbitration, it is dangerous to ignore the notification in the hope that any default award will not be enforced. If the arbitrator ensures that notice is given of each material event and the party has not been disadvantaged or treated unfairly, it is time to engage before it is too late.