In The Secretary of State for the Home Department v Raytheon Systems Limited [2014] EWHC 4375 (TCC) and [2015] EWHC 311 (TCC) the Home Office succeeded on its application to set aside a £200m+ arbitration award made by an arbitral tribunal last year. The judgment is concerned almost exclusively with the law affecting arbitration and the duties of arbiters; the context just happens to be a high-value technology contract.
US defence company Raytheon Systems Limited (RSL) was engaged by the Home Office in 2007 to design, develop and deliver the £750 million e-Borders technology system, in order to reform UK border controls by putting in place an electronic system to vet travellers leaving and entering Britain by checking their details against police, security and immigration watchlists. By 2010, key milestones had been missed and parts of the programme were running at least one year late leading to its termination by the Home Office. RSL claimed that the termination was unlawful and that it was entitled to recover substantial damages for wrongful termination. A confidential arbitration process was then commenced, with the issue of the award in August 2014 which held that the termination was unlawful and directed the Home Office to pay substantial sums to RSL, comprising £49.98 million for damages, £9.6 million for disputed contract change notices, £126 million for assets acquired by the Home Office during the contract and substantial sums in respect of interest and RSL’s costs of the arbitration.
The Home Office’s challenge to the award, under s 68(1) and s 68(2)(d) of the Arbitration Act 1996, was upheld by Mr Justice Akenhead, who determined in his first judgment that the award had been tainted by serious irregularity so as to cause substantial injustice and, in his second judgment, that the consequence was that the Award must be set aside in total and reheard by a new Tribunal.
While some of the grounds of challenge were unsuccessful, Akenhead J found that the arbitration tribunal had failed to assess the nature and seriousness of any defaults of RSL in determining whether it was objectively reasonable and proportionate for the Home Office to terminate the contract and that RSL should not be permitted to recover costs for the Transferred Assets without any consideration of whether it was itself responsible for those costs through its own deficient performance. He found that the failure to address the issues had caused substantial injustice.
Akenhead J found that defects in the process meant that the award should be set aside in total and the matter determined by a new tribunal. He considered that it would be ‘invidious and embarrassing‘ for the existing tribunal to try and re-determine the issues that were the subject of the successful challenge. Should the Tribunal reach the same overall outcome on a rehearing, that might well lead to a strong belief objectively that justice had not been or been seen to be done;
Leave to appeal has been granted.
