Worldwide: "And Bad Mistakes, I've Made A Few…" (Apologies To Queen)

Overview

Sir Ross Cranston commences his reasons in the case of Doglemore Trade Ltd v. Caledor Consulting Ltd [2020] EWHC 3342 (Comm), by quoting Sir John Donaldson MR in The Montan: "[M]istakes will occur even in the practices of the best of arbitrators". While unfortunate, mistakes can occur. In such cases, one can seek relief from the tribunal or the courts. The mistake in Doglemore Trade Ltd v. Caledor Consulting Ltd, although seemingly obvious, required an application to the courts for relief.

The Mistake

The facts of the case are straightforward. Caledor Consulting Ltd (Caledor) was, under a call option deed, given an option to purchase 30 per cent of the shares in a company by Doglemore Trade Ltd (Doglemore) for US$60 million. The call option deed was exercisable within two years from the end of February 2018. Governed by English law, the call option deed provided for disputes to be resolved by the London Court of International Arbitration (LCIA). A dispute arose. The call option deed was repudiated and the repudiation was accepted.

Arbitration was commenced by Caledor seeking damages. As part of the process, the parties agreed to a model (referred to as the Agreed Model). The Tribunal issued an Award stating that the loss was US$58 million. It then became apparent that there had been a computational error. The Tribunal had added rather than subtracted historic tax liabilities. It was asserted but for the error, the true loss figure would have been US$4 million. Doglemore applied to the Tribunal for the Award to be corrected under the LCIA Rules, which applied to "any error in computation, any clerical or typographical error, any ambiguity or any mistake of a similar nature".

Surprisingly, the Tribunal refused to alter its Award, stating in its response that it had not intended to adopt a mechanical approach to the calculation of damages and that the figure awarded was somewhere between the two extremes of the parties' respective positions. The Tribunal agreed that it had focused on the Agreed Model provided by the parties and made an "error of computation", or a "clerical or typographical error" or a "mistake of a similar nature" when it inputted its figure for Tax Risk (line item 23) into the Agreed Model as a positive rather than a negative figure despite clear instructions provided by the parties that the figure was only to be entered as a negative number. The Tribunal admitted this instruction had been "overlooked".

The Tribunal also conceded that, had it understood the effect of the mistake, it would have given further thought to the EBITDA margin used in the Agreed Model to ensure it was properly compensating Caledor.

The Tribunal Decides Not to Correct the Mistake

Despite the Tribunal's concessions of the error and the consequences flowing from that error, the Tribunal refused to give the relief sought taking the position it was not justified. Doglemore had sought relief under the LCIA Rules to change the value of the Award itself and not simply to correct the error of entering the wrong figure into the Agreed Model. It explained:

"[E]ven allowing for the fact that we did not intend to make the mistake in line item 23, it does not follow that (barring such a mistake) we intended to value the group and the Option Shares and award damages in the recalculated and very much reduced sums proposed by the [Doglemor Parties]. On the contrary, we consider that if we made the corrections sought.this would not result in giving effect to our true intentions, as expressed in the Award, of awarding substantial damages to the [Caledor Parties]".

It went on to explain the Agreed Model was only one driver in the assessment of the issues and that it had never intended the Agreed Model to be a mechanical method to arrive at the Award. In rejecting the application, the Tribunal found the Award resulted in reasonable compensation for Caledor, even if there had been an error in the Agreed Model.

The Court Directs the Tribunal to Reconsider the Award in Light of the Mistake

Doglemore appealed under section 68(2)(i) of the Arbitration Act 1996, on the ground that there was an admitted error in the Award. The Court initially considered whether the explanation from the Tribunal with respect to the mistake was part of the Award. It agreed that the explanation from the Tribunal as to the mistake did not form part of the Award, contained further reasons or was in any sense binding, but determined that Doglemore could rely on the explanation to establish an admitted irregularity for the purposes of section 68(2).

Caledor also took the position that the error was one of fact and not reviewable by the Court. Sir Ross Cranston did not agree:

"In my view section 68(2)(i) covers the type of admitted mistake in this case. This was not an error of fact (or for that matter of law). It fell into a different category, an error of implementation, not doing what the Tribunal stated on the face of the Award it intended to do, with the mistake of adding rather than subtracting the adjustment in relation in particular to historic tax liabilities. That led to differences in computation in the Award from what otherwise would have been the case".

Of note, while the Tribunal stated in its explanation that substantial damages were called for, it had not said that it would have made exactly the same calculation of damages had it been conscious of the mistake. As such, if the Tribunal had had an opportunity to address the mistake, it might well have produced a significantly different award and outcome.

The Court referred the matter back to the Tribunal for reconsideration, but narrowed the issues:

"In my view the Award must be remitted to the Tribunal for it (i) to correct the computational error; (ii) to reach a concluded view in light of the evidence (such as it is) as regards the EBITDA margin; and (iii) to calculate a figure for the Caledor Parties' loss when that EBITDA margin is coupled with its other (unchanged) findings in the Award".

Conclusion and Lessons Learned

Tribunals will on occasion make mistakes. This case provides a thorough overview of the relief available to the parties and a succinct summary of the relief available under section 68 of the Arbitration Act. Further, it is worth considering how to frame the relief sought if an award is referred back to the Tribunal under the governing rules for correction on the basis of a mistake. Careful thought should be given to identifying the error and what one would like the Tribunal to do if it confirms the mistake.

To view the original article click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.