An irregular challenge

The claimant construction company, Kharafi was the main contractor for airport construction works in Ethiopia. Kharafi engaged Protech as earthworks subcontractor. Kharafi terminated the subcontract before the earthworks were completed and Protech made various claims that were referred to arbitration. The arbitrator made several awards in Protech’s favour including a substantive award of damages and a costs award.

During the arbitration Protech had mistakenly failed to disclose an agreement whereby Protech had given up the proceeds of its claim against Kharafi to one of its creditors. Kharafi argued that this had the effect of depriving Protech of its standing to advance its claims. Kharafi sought to set aside the arbitration awards pursuant to section 68 of the Arbitration Act 1996. Section 68 permits awards to be challenged for “serious irregularity” which has caused or will cause “substantial injustice” to the applicant. Kharafi claimed that the way in which the awards had been procured was “contrary to public policy” and amounted to a “serious irregularity” under the 1996 Act.

The Decision

The Honourable Mr Justice Langley upheld previous authority that “serious irregularity” and “substantial injustice” are to be reserved only for extreme cases. On this basis, in order to be contrary to public policy, the conduct complained of should involve more than an unintentional mistake and should, except very exceptionally, involve something that could be described as “unconscionable” or “reprehensible”. Accordingly, the matters on which Kharafi relied, namely unintentional non-disclosure, did not satisfy the public policy test or the requirement of substantial injustice. Kharafi’s application was therefore refused.