SCM Financial Overseas Ltd v Raga Establishment Ltd [2018] EWHC 1008 (Comm)


In SCM Financial Overseas Ltd v Raga Establishment the Commercial Court dismissed a challenge to an arbitration award brought on the basis that a tribunal's refusal to defer their award pending the outcome of court proceedings, which might have impacted upon the decision the arbitrators had to make, amounted to serious irregularity within the meaning of section 68 of the Arbitration Act 1996 (the Act).


In the underlying arbitration, the Claimant (Raga) alleged that the Defendant (SCM) had failed to pay instalments of the purchase price due under an SPA pursuant to which SCM bought shares in a company called UA Telecominvest Limited (UAT) from Raga. It was acknowledged in the SPA that the principal value of the UAT shares was UAT's indirect shareholding in another company, Ukrtelecom. SCM's defence was premised on the risk that the shares in Ukrtelecom would be confiscated by the Ukrainian state because of issues for which Raga was responsible. 

A matter of days before the first evidentiary hearing in the arbitration, proceedings were commenced in Ukraine seeking an order returning the Ukrtelecom shares to state ownership and claiming a penalty from Ukrtelecom's parent company (by this time a subsidiary of SCM) in the sum of US $81.8 million. In oral closing submissions, SCM's counsel argued that if the tribunal came to the view that the case turned on whether SCM's shares in Ukrtelecom would be confiscated then the tribunal should defer its award. 

The tribunal acknowledged that the decision of the Ukrainian court was relevant and might affect its decision. However, it declined to defer its award on the basis that to do so might result in uncertainty over a lengthy period which could be prejudicial to either party. It also noted that the tribunal was under a duty to adopt procedures which avoid unnecessary delay and expense. 

Shortly after the evidentiary hearing, the arbitrators published a Partial Final Award in which they found in favour of Raga. Three months later, the Ukrainian Court delivered its judgment. It reached different conclusions to the arbitrators on a number of issues. The consequence was that SCM was obliged to pay the full purchase price for the shares in UAT (pursuant to Partial Final Award) and a penalty to the Ukrainian state (pursuant to the Ukranian court order) notwithstanding that the shares in Ukrtelecom would be confiscated.


SCM's challenge was dismissed by the Court.

The Court found that a decision not to defer an award until further evidence is available is, in principle, capable of amounting to a breach of an arbitrators duty to act fairly and impartially pursuant to section 33 of the Act (and so, in turn capable of amounting to serious irregularity within the meaning of section 68 of the Act). Whether such a decision in fact amounts to a breach of section 33 depends on all of the circumstances including, but not limited to, the nature and significance of the evidence, the likelihood of it becoming available, the length of the delay which will result and the prejudice to the party resisting deferral from that delay. Furthermore, the issue must be considered in light of the wide discretion given to arbitrators in matters of procedure and evidence by section 34 of the Act. 

On the facts of this case, the court found that, while the arbitrators could not have been criticised if they had decided to defer their decision for a short time to find out more about the issues that would be decided in the Ukrainian proceedings, and the likely timescale within which a judgment could be expected, their decision was one which they were entitled to reach. 

The Court acknowledged that the decision of the Ukrainian court was potentially important evidence which might have resulted in the arbitrators reaching a different conclusion. However, it concluded that there were several factors pointing against deferral. First, the judgment of the Ukrainian Court would not be determinative. The arbitrators would be perfectly entitled to reach a different conclusion from the Ukrainian court on issues of foreign law and fact.  Second, if Raga was entitled to succeed then it would be kept out of its money for a potentially lengthy period (which may also render the enforcement of any award more difficult). Third, while the prejudice to SCM was potentially very significant, it would only occur if the decision of the Ukrainian court resulted in the confiscation of the shares and if the decision of the Ukrainian court would cause the arbitrators to reach a different conclusion – neither of which were certain. Moreover, the kind of prejudice that SCM would suffer as a result of the court and tribunal reaching inconsistent conclusions was, to an extent, a risk inherent in the choice of arbitration. 

SCM argued before the Court that if the likely duration of the Ukrainian court proceedings was an important factor in the tribunal's decision then it should have asked for such information. The Court rejected this argument concluding that it would be unreasonable to impose such a burden on the arbitrators. The court went on to conclude that if SCM (who was represented by experienced counsel and solicitors) had information about the duration of the proceedings it would have presented it. In the absence of such information, the tribunal was entitled to conclude that SCM had no such information and that deferring the award may result in uncertainty over a lengthy period. 


When seeking to persuade a tribunal to defer an award, it is important to provide the tribunal with all relevant information which may impact upon its decision (and not to rely on the tribunal to request such information). In particular, if the deferral is sought pending the outcome of proceedings, the tribunal should be provided with information on when a judgment can be expected.  

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