INTRODUCTION
In RAV Bahamas Ltd and another v. Therapy Beach Club Incorporated1 (“RAV Bahamas”), a decision of the Court of Appeal of the Bahamas that upheld the arbitral award was overturned by the privy council on the ground of “Serious irregularity”. The main issue that fell before the judicial committee of privy council was to interpret and give meaning to section 90 of the Bahamas Arbitration Act, 2009 (“the Act”) which is modelled on section 68 of the English Arbitration Act 1996 (“the 1996 Act”). The main question that required clarity under section 90 was whether there to be a separate and express allegation, consideration and finding of substantial injustice for a serious irregularity to be established.
While reaching to the judgment, the privy council has also relied on the decision of the highest UK appellate court in Lesotho Highland Development Authority v. Impregilo SpA2 (“Lesotho”).
BRIEF BACKGROUND
By a lease dated 31 December 2011, RAV leased certain land on the island of Bimini in the Bahamas to Therapy for the building and operation of a restaurant and beach club (together called the “Sakara Beach Club”). Also, according to clause 5(t) of the lease, the term of the lease was three years with an option for the lessee, by giving six months’ notice, to renew the lease for a further three years “subject to the parties agreeing to rents to apply to the renewal term.” Pursuant to clause 2(d) of the lease, Therapy was to pay $150,000 to RAV for the construction of the Sakara Beach Club which was to be completed within 120 days of the receipt of that payment. Therapy alleged that, in breach of contract, the building work was not properly completed, that Therapy had to attempt to complete it at its own expense and that, even by July 2013, it was not fully complete.
Interestingly, On March 18, 2013, proceedings were commenced by RAV against Therapy in the Supreme Court of the Bahamas, alleging that the lease was void, illegal and of no effect, on the grounds that its terms violated the International Persons Landholding Act of the Bahamas. Even before the Supreme Court determined the issue, the Appellants evicted the Respondent and demolished the restaurant and club facilities. However, the chief justice rejected this claim made by RAV.
Following the eviction, the matter was referred to the arbitral tribunal that awarded a $9.67m damages against the Appellants.
Pursuant to this order by the arbitral tribunal, the appellants preferred an appeal before the Supreme Court on the grounds that the award was affected by serious irregularity on the following basis:
The period for which general damages for consequential loss of profits had been awarded should not have extended beyond the original term of the lease, which expired on 30 December 2014, and should not have included the three-year renewal period.
The Arbitrator failed to deal with the issues stipulated.
Also, the arbitrator had acted unfairly in not affording the Appellants an opportunity to address certain adjustments she had made to the Respondent’s damages for consequential losses prior to the award.
These complaints as alleged by the appellants succeeded in the court of first instance in the Bahamas and the court therefore remitted the matter to the arbitrator, in part, for reconsideration of the general damages for consequential loss and, at para 52, he directed that she should: (i) permit RAV to make submissions on the proposed adjustments to the evidence of the expert witnesses’ projections prior to her reconsideration of the consequential damages award; and (ii) consider the issue of whether the award could properly reflect any losses in the option or renewal period, on which she was permitted to receive further submissions.
Adding to the above finding, the court did not find any serious irregularity in the award rendered by the arbitrator and merely order for reconsideration.
APPEAL BEFORE THE BAHAMAS COURT OF APPEAL
The Court of appeal by a majority allowed the appeal made by the Therapy in the instant case and by majority reversed the order of the Supreme Court and upheld the arbitration award. The grounds relied on doing same are as follows.
The Supreme Court had not expressly and separately considered that the irregularities found led to substantial injustice; and
The Appellants themselves had similarly failed to directly and separately bring before this court that the irregularities raised has caused substantial damage; and
The real complaint made by RAV was that the arbitrator had made errors of law in which case the challenge should have been brought by way of appeal on a point of law pursuant to section 91 of the 2009 Act and not under section 90.
What Privy Council held?
Pursuant to the decision of the court of appeal, an appeal was preferred to the Privy Council. The Privy Council held that, “while it is good practice and should be encouraged, it is not a requirement of section 90 of the 2009 Act that there be a separate and express allegation, consideration and finding of substantial injustice. It is sufficient that, as a matter of substance, substantial injustice be established and found.”
This court further relied on the decision of Secretary of State for the Home Department v Raytheon Systems Ltd5 where Akenhead J stated that:
“(i) For the purposes of meeting the ‘substantial injustice’ test, an applicant need not show that it would have succeeded on the issue with which the tribunal failed to deal or that the tribunal would have reached a conclusion favorable to him; it [is] necessary only for him to show that (i) his position was ‘reasonably arguable’, and (ii) had the tribunal found in his favor, the tribunal might well have reached a different conclusion in its award…”
The board considered that the arbitrator’s denial to look into the issues have caused serious irregularity to the appellants and the same is not required to be brough or pleaded separately.6 Not only this but the privy council also geld that the board was in violation of the principle of due process by not giving the appellant a full opportunity to be heard as the respondents were only aware of the adjustments made and not the appellants. The board on these grounds held that there was serious irregularity on part of the tribunal leading to severe injustice.
CONCLUSION AND EFFECT OF THIS JUDGEMENT
The instant judgment in RAV Bahamas by the Privy council will bring clarity in the application of Section 90 the Bahamas Arbitration Act, 2009. Not only this but will also clarify and strengthen the position of the English Arbitration Act, 1996 under section 68.
It was rightly pointed by Lord Steyn in Lesotho Highland Development Authority v. Impregilo SpA7 that a “major purpose of the [1996] Act was to reduce drastically the extent of intervention of courts in the arbitral process”. This principle has remained untouched for over a decade in UK but the current judgement in RAV Bahamas will strengthen the position of this doctrine. Lastly, it is important to assert that there will be substantial injustice only where it is established that, had the irregularity not occurred, the outcome of the arbitration might well have been different.