The court’s decision in Aston Martin Mena Ltd v Aston Martin Lagonda Ltd highlights an important factor to consider in drafting contractual arbitration provisions.
Section 69 of the Arbitration Act 1996 allows parties to appeal to the court on a question of law arising out of an award made in the proceedings “unless otherwise agreed by the parties”. Given that finality is often cited as an advantage of arbitration, it is common for parties to exclude the ability to appeal to the court on a point of law. Many of the most commonly used institutional rules incorporate a waiver of the right to appeal an award on a point of law, including the LCIA and ICC rules.
The price is right
Appeals of awards on a point of law under s.69 are therefore rather rare, but in Aston Martin Mena Ltd v Aston Martin Lagonda Ltd the High Court considered one. The parties’ dispute centred on a distribution agreement between AML, a manufacturer of luxury cars and AMMENA, its distributor in the Middle East and Africa. The agreement set out two requirements for the price at which AMMENA would be able to purchase cars from AML:
- The price would not be materially higher than the UK factory price applicable to other territories; and
- The price would be in line with prices applicable to other territories for equivalent vehicles.
AMMENA was AML’s only independent distributor. It argued that the prices at which it could acquire vehicles should be set by reference to prices charged by AML to its own distributors, which were part of the AML group of companies. AML’s position was that the correct prices to use as a comparison were those charged to independent retailers in territories where AML had no captive distributor. The amounts charged to its own captive distributors were not “prices” on AML’s case, but intra-group transfer values used only for accounting purposes.
The arbitral tribunal, appointed under UNCITRAL rules, found for AMMENA on the basis that the correct comparator was an arms’ length sale to an independent retailer. As the UNCITRAL rules do not preclude appeals on a point of law and the arbitration agreement included no exclusion of a right of appeal, AMMENA appealed to the High Court.
“Obviously wrong” or just wrong?
At the permission stage, Knowles J applied the threshold test and found that the decision appeared to be “obviously wrong”, such that AMMENA could appeal. At the full appeal hearing, Bright J applied the test for considering an appeal on the merits, which he held only requires the decision of the tribunal to be “wrong”.
Perhaps surprisingly, given this less stringent test than at the permission stage, the judge was not convinced that the award was wrong, agreeing with the tribunal that the natural interpretation of the word “price” implied an amount arrived at through arms’ length negotiations, and not merely an internal accounting exercise. Bright J noted that “contractual interpretation seldom occurs in the abstract. The iterative process that has now become familiar means that contractual interpretation is generally undertaken with a good deal of surrounding context – not least, whatever evidence there may be about the factual matrix.” A court faced with interpreting a contract on a s.69 appeal has far more limited evidence than the original tribunal and should therefore be slow to override their decision.
What this means for you
Anybody entering into an arbitration agreement should consider whether an appeal on a point of law is an avenue they wish to leave open. Most will not, in which case most institutional rules will accord with this choice, but it is worth checking to be sure. If the parties are adopting UNCITRAL rules, they will need to add express wording to their arbitration clause to exclude the right to appeal on a point of law.
Even where a right of appeal is left open, the courts will be slow to interfere with an arbitral tribunal’s decision. Appeal courts regularly note the better position of a first instance judge to assess all the facts in the round with the benefit of hearing all the evidence and the same applies when the High Court hears a s.69 appeal. The fact that a judge at the permission stage finding a decision arguably “obviously wrong” does not preclude a judge at the merits stage finding it was not wrong at all may seem surprising, but is best understood as a high threshold for appeals to reach a merits hearing. Once a merits hearing is allowed, however, the question of whether the decision is wrong is addressed afresh.
