Trinidad Court Sets Aside LCIA Award Due to Errors “On the Face of the Award”

The High Court of Trinidad and Tobago has set aside an LCIA award issued in favor of Brazilian contractor Construtora OAS S.A. (“OAS”) against the National Infrastructure Development Company Limited (“NIDCO”) on the basis that there were errors of law which were manifest “on the face of the award”.[1] The Court held that the award was premised upon “findings which were unsupportable by the evidence, inconsistent with the law and are decisions which no reasonable arbitrator could have arrived at”.[2] The decision highlights the Trinidad Court’s willingness to scrutinize a tribunal’s legal reasoning, and in some cases the documentary evidence submitted in the underlying arbitration, in the context of a set-aside application. The decision also may be instructive in connection with set-aside proceedings in other Caribbean jurisdictions with arbitration legislation similar to the Trinidad Arbitration Act. 

Factual Background

In July 2011, NIDCO engaged OAS to design and construct a highway extension in the south of Trinidad (the “Contract”). NIDCO is a corporate entity owned by the government of Trinidad and Tobago to carry out public infrastructure work. The Contract was governed by the laws of Trinidad and Tobago with disputes to be resolved by arbitration under the LCIA Rules with a seat in Port of Spain, Trinidad.

Following general elections in September 2015 and a change in NIDCO’s management, OAS submitted a notice of default due to non-payment by NIDCO. Following negotiations between OAS and NIDCO, in January 2016, the project engineer certified an interim payment certificate for negative USD 22,192,265 (the “IPC”). However, the parties did not reach or formalize any agreement to terminate the Contract amicably.

In March 2016, OAS reduced its workforce, and then submitted a notice of dispute to NIDCO, claiming that the IPC was not valid and that NIDCO failed to make a required payment in May 2016. NIDCO served a notice of termination on June 21, 2016 on the basis that OAS had abandoned the works and/or OAS had filed a petition for judicial reorganization in Brazil (which were both grounds for termination under the Contract).

Legal Background

On August 1, 2016 OAS commenced LCIA arbitration proceedings against NIDCO and the Republic of Trinidad and Tobago for wrongful termination of the Contract.

The Tribunal concluded that:

1. the IPC was void ab initio on the basis that it was not made in accordance with the Contract; and
     
2. NIDCO had wrongfully terminated the Contract because:

a) OAS had not abandoned the works as it continued to submit IPCs and renewed its performance bonds; and

b) NIDCO had waived the right to terminate due to OAS's insolvency by way of an addendum to the Contract waiving certain claims.

Judgment

NIDCO commenced proceedings before the High Court of Trinidad and Tobago to set aside the award on the basis that there were errors of reasoning and an erroneous interpretation of the Contract by the Tribunal which are manifest on the face of the award and these amount to errors of law.[3] The Trinidad Arbitration Act (the “Act”), which is based on early English arbitration law that predates the 1996 English Arbitration Act, allows the Court to remit matters referred to arbitration to the tribunal for reconsideration and set aside an award where an arbitrator "has misconducted himself or the proceedings, or an arbitration or award has been improperly procured".[4] The Court also has inherent jurisdiction to set aside an award where it is, inter alia, subject to an error on the face of the award.[5]

OAS argued that a clause in the Contract stating that an award shall be final, binding and not subject to appeal precluded the Court from reviewing the Tribunal’s reasoning and interpretation of the Contract. However, the judge concluded that any such attempt to limit the Court’s jurisdiction would contravene public policy. In this case, it was in the public interest for the Court to exercise its supervisory jurisdiction because of the impact on the public purse and local businesses and suppliers.[6]

The Court concluded that its power under the Act to set aside an award due to an error on its face extends beyond clerical errors or incorrect damages calculations.[7] The judge further considered that documents attached to the Statement of Claim had been incorporated into the award by way of the Tribunal's chronology and therefore the Court could consider such documents to determine whether there was an error "on the face of the award". The judge concluded that “where the facts as placed before a Tribunal reveal that there existed no evidence upon which a reasonable arbitrator could have arrived at the findings which were issued, the Court may set aside an award”, but any review ought to be restricted to an assessment as to whether the evidence relied upon, as a matter of law, reasonably supported the Tribunal’s conclusions.[8]

The Court set aside the award and remitted the issues in dispute for reconsideration by the Tribunal pursuant to Section 18 of the Act and/or its inherent jurisdiction on the basis that:

• the Tribunal's declaration that the IPC was void ab initio was “not anchored in law” and did not cite or analyze any authority in support of its decision. The Tribunal's view was "commercially absurd" on the basis that mistakes made in the discharge of the engineer's duties, as a matter of law, should not invalidate the decisions made.[9]
• the Tribunal failed to consider the purpose and effect of the word "immediately" in a provision which required OAS to resume works immediately on payment. On the basis that subsequent IPCs were either nil or de minimis and renewing performance security was merely performance of a contractual obligation, "no reasonable arbitrator cognizant of the law and seized of the evidence adduced" could have concluded that OAS had not abandoned the works.[10]
• a tribunal acting reasonably and rationally should have attached serious weight to the argument that the insolvency events may have been able to independently trigger the right of termination. "On the face of the award", there was no consideration as to the purport and effect of the clause and the Tribunal ought to have clearly and comprehensively explained why it rejected NIDCO's evidence and submissions.[11]

Comment

The Court endorsed in NIDCO a broad interpretation of its supervisory power under Section 19 of the Act. The Court did not limit its review to, for example, calculation errors. The Court scrutinized the Tribunal’s legal reasoning, as well as the documentary evidence submitted in the underlying arbitration.

A similar issue could arise in a number of jurisdictions in the Caribbean where arbitration laws are based on similar early English legislation (as opposed to, for example, the UNCITRAL Model Law).[12] Practitioners and tribunals alike should be cognizant of the fact that in such jurisdictions a court may review the Tribunal’s legal reasoning and the evidence adduced in the proceedings to assess potential errors of reasoning and/or contractual interpretation.

This contrasts with the approach taken in other jurisdictions with respect to express provisions in an underlying contract and/or institutional rules restricting a supervisory court’s ability to review points of law. For example, for London-seated arbitrations, the English Courts generally would consider that the parties’ selection of the LCIA Rules precludes a party from appealing to the English Courts on a question of English law under Section 69 of the Arbitration Act 1996. The party challenging the award therefore would need to demonstrate either that the Tribunal lacked substantive jurisdiction or that there had been “serious irregularity”.

Because the NIDCO arbitration was seated in Trinidad, the Court in NIDCO applied the Act to determine whether to set aside the award. Proceedings in Trinidad relating to foreign arbitral awards are governed by the Arbitration (Foreign Arbitral Awards) Act,[13] which implements the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”). That said, international contractors should take note of the Court’s comments on public policy: in the context of a major infrastructure project, the judge expressly noted that “the factual matrix mandates that it is in the public interest for the Court to exercise its supervisory jurisdiction” given the impact on public finances and local businesses.[14] The Convention gives a court the discretion to refuse enforcement if "The recognition or enforcement of the award would be contrary to the public policy of that country."[15] It is therefore possible that a Trinidad Court would apply a similar interpretation of public policy in respect of enforcement of foreign awards where a party is government-owned and/or the underlying project has wider implications for the state as a whole.

If you have any questions concerning the material discussed in this client alert, please contact the members of our International Arbitration practice.