Lachesis v Lacrosse [2021] DIFC ARB 005 — The limits of procedural challenges to arbitral awards

The DIFC Court of First Instance confirms that technical non-compliance with arbitral rules does not warrant setting aside an award absent demonstrated prejudice or a failure to utilize available correction mechanisms.

What specific procedural and substantive grounds did Lachesis raise to challenge the arbitral award issued by the Ladonna tribunal in ARB 005/2020?

Lachesis sought to set aside the final award issued on 20 February 2020, which had found in favor of Lacrosse regarding charter disputes for a project in the Lacey. The Claimant advanced eight distinct grounds for challenge, ranging from procedural irregularities to alleged incapacity and public policy violations. Central to the dispute was the Claimant’s assertion that the tribunal failed to adhere to the agreed-upon arbitral procedure, specifically the requirement under the Ladonna Rules that the award be signed on every page.

The Claimant’s challenge was broad, attempting to leverage various provisions of the DIFC Arbitration Law to invalidate the tribunal's findings. However, the Court noted that several of these grounds were fundamentally deficient, lacking any nexus to the statutory requirements for setting aside an award. As the Court observed:

The Claimant does not purport that the objections under Ground 4 engage a specific provision of Article 41 of the Arbitration Law.

The Claimant’s failure to anchor its grievances in the specific legal framework of Article 41, combined with a lack of evidence regarding actual prejudice, rendered the application unsuccessful across all eight grounds.

Which judge presided over the Lachesis v Lacrosse [2021] DIFC ARB 005 proceedings and in which division was the matter heard?

The matter was heard by H.E. Justice Shamlan Al Sawalehi in the Arbitration Division of the DIFC Court of First Instance. The final order was issued on 22 March 2021, following a teleconference hearing held on 30 November 2020.

How did Lachesis and Lacrosse frame their respective arguments regarding the validity of the unsigned pages in the arbitral award?

Lachesis argued that the failure of the tribunal to sign every page of the award, as mandated by Article 37(4) of the Ladonna Rules, constituted a "serious breach" of the mandatory requirements for the form and delivery of an award. The Claimant contended that this procedural failure was sufficient, in and of itself, to justify setting aside the award under Article 41(2)(a)(iv) of the DIFC Arbitration Law.

Conversely, Lacrosse argued that the Court should distinguish between substantive procedural breaches and mere technical non-compliance. The Defendant maintained that the Claimant failed to demonstrate any prejudice resulting from the missing signatures. Furthermore, Lacrosse highlighted that the Claimant had failed to utilize the correction mechanism provided under Article 40(1)(a) of the Arbitration Law, which allows parties to request the correction of clerical or typographical errors within 30 days of receiving an award.

What was the precise legal question the Court had to answer regarding the exercise of its discretion under Article 41(2) of the DIFC Arbitration Law?

The Court was tasked with determining whether a proven departure from the agreed-upon arbitral procedure automatically mandates the setting aside of an award, or whether the Court retains the discretion to uphold an award despite such irregularities. Specifically, the Court had to decide if the Claimant’s failure to demonstrate prejudice or to seek a correction under Article 40(1)(a) precluded the exercise of the Court’s discretionary power to set aside the award under Article 41(2).

How did Justice Shamlan Al Sawalehi apply the doctrine of prejudice when evaluating the Claimant’s procedural objections?

Justice Al Sawalehi emphasized that the DIFC Court will not act as a forum for reviewing the merits of an arbitral award, nor will it set aside awards based on trivial technicalities. The Court held that the mere existence of a procedural error is insufficient to trigger the setting aside of an award; the applicant must demonstrate that the error caused actual harm or prejudice.

The Court’s reasoning focused on the necessity of materiality in procedural challenges. By failing to explain how the lack of signatures on every page negatively impacted the proceedings or the final outcome, the Claimant failed to meet the threshold for relief. The Court noted:

departures from the parties’ arbitral procedure will generally be condoned unless they are prejudicial.

Furthermore, the Court held that the Claimant’s failure to raise the issue during the arbitration or via the post-award correction process under Article 40(1)(a) amounted to a waiver of the right to object.

Which specific sections of the DIFC Arbitration Law and related statutes were central to the Court’s analysis of the setting-aside application?

The Court’s analysis was primarily governed by Article 41 of the DIFC Arbitration Law (DIFC Law No. 1 of 2008), which outlines the exclusive grounds for setting aside an award. Specifically, the Court examined Article 41(2)(a)(iv), regarding the arbitral procedure, and Article 41(2)(a)(i) and (ii), regarding capacity and the ability to present a case. Additionally, the Court referenced Article 40(1)(a), which provides the mechanism for correcting clerical or typographical errors. The Court also considered the broader public policy implications under Article 9, noting that the public policy of the UAE is consistent across jurisdictions.

How did the Court utilize the precedents of Loralia Group and the principles of waiver in its decision-making process?

The Court relied on Loralia Group LLC v Landen Saudi Company to affirm the consistency of public policy standards within the UAE. Regarding the waiver of objections, the Court applied the principle that a party cannot sit on its rights. By failing to utilize the 30-day window provided by Article 40(1)(a) to request a correction of the award, the Claimant was deemed to have waived its right to challenge the award on the basis of those specific technical errors. The Court highlighted the Defendant's argument:

Moreover, as the Defendant has argued, pursuant to Article 40(1)(a) of the Arbitration Law, if the Claimant determined that there were in the Award “any errors in computation, any clerical or typographical errors or any errors of a similar nature,” it had 30 days upon receipt of the Award to request that those errors be corrected.

What was the final disposition of the Lachesis v Lacrosse application and what orders were made regarding costs?

The Court dismissed the Claimant’s application to set aside the arbitral award on all eight grounds. Consequently, the Court ordered that the Claimant pay the Defendant’s costs of the proceedings on the standard basis, to be assessed by a Registrar if the parties could not reach an agreement on the quantum.

What are the wider implications of this judgment for practitioners seeking to challenge arbitral awards in the DIFC?

This judgment reinforces the pro-enforcement stance of the DIFC Courts and serves as a warning to practitioners that technical challenges will be met with skepticism. Litigants must anticipate that the Court will require a high threshold of proof regarding prejudice before considering the setting aside of an award. Furthermore, the decision underscores the importance of utilizing internal arbitral correction mechanisms (such as Article 40) before approaching the Court. Failure to do so will likely be interpreted as a waiver of the right to object, effectively barring the applicant from raising those issues at the enforcement or set-aside stage.

Where can I read the full judgment in Lachesis v Lacrosse [2021] DIFC ARB 005?

The full judgment is available on the DIFC Courts website: https://www.difccourts.ae/rules-decisions/judgments-orders/arbitration/arb-005-2020-lachesis-v-lacrosse. The text can also be accessed via the CDN: https://littdb.sfo2.cdn.digitaloceanspaces.com/litt/AE/DIFC/judgments/arbitration/DIFC_ARB-005-2020_20210322.txt

Cases referred to in this judgment:

Legislation referenced:

• DIFC Law No. 1 of 2008 (Arbitration Law): Articles 9, 38(2), 40(1)(a), 41(2)(a)(i), 41(2)(a)(ii), 41(2)(a)(iv).