“Obviously wrong” threshold for challenging London-seated arbitration awards applies at leave to appeal stage, not the appeal itself

Factual background

Disputes arising under a Distribution Agreement (the Agreement) between the well-known luxury car manufacturer Aston Martin Lagonda Ltd (“AM”) and Aston Martin MENA Ltd (“MENA”), its sole distributor in the Middle East and North Africa, were referred to arbitration, with the tribunal issuing an award in 2024.

MENA sought leave to appeal the award under s.69 of the Act. The court granted permission, meaning it was satisfied that (among other factors) “on the basis of the findings of fact in the award…the decision of the tribunal on the question is obviously wrong.”

MENA's appeal related to the tribunal's interpretation of Article 4(A)(1) of the Agreement, concerning the “price” at which AM was to sell cars to MENA: was it restricted to prices charged by AM to a (captive) distributor, or to a price fixed in the context of an arm's length relationship?

As MENA's challenge related to a single, bespoke clause, MENA did not argue that a question of general public importance arose, meaning that s.69(3)(c)(ii) of the Act, containing a lower threshold test of “open to serious doubt” in cases where the question is one of general public importance, was not engaged.

The Commercial Court's analysis

s.69(3)(c)(i) of the Act

The judge rejected AM's argument that even after leave has been granted, the court dealing with the substantive appeal on the merits can and should apply the “obviously wrong” test. Neither the wording of s.69 nor recent Commercial Court decisions supported such an approach. Endorsing these authorities, he said: “Permission to appeal having been granted, I simply have to decide the appeal. It is MENA's appeal, so the persuasive burden is on MENA to persuade the court that the award was wrong and that the question of law that the appeal identifies should now be given a different answer. However, the test to be applied is not 'obviously wrong'.”

The interpretation of Article 4(1)

Before turning to interpret Article 4(1) of the Agreement, the judge cited some of the key cases setting out principles for interpreting contracts governed by English law, such as Arnold v Britton [2015] UKSC 36 at [15]:

“Meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the [agreement], (iii) the overall purpose of the clause and the [agreement], (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions.”

He also referred to Wood v Capita Insurance Services Ltd [2017] UKSC 24 at [12]:

“This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated…”.

The judge noted the “stark reality” that in a s.69 appeal, the court has before it limited materials (typically only the award and the relevant contract), unlike a tribunal which has conducted a multi-day evidentiary hearing. Since his knowledge of the factual matrix was less than that of the tribunal, he could not conduct the iterative process in the way that the tribunal had.

Ultimately, the judge concluded that whilst strong arguments were advanced by each party on the meaning of the word “price”, neither was “overwhelmingly compelling”. He dismissed MENA's appeal and upheld the award, emphasising that the natural meaning of “price” in a commercial context is an arm's length commercial price and that there was no basis for displacing such a meaning in this case.

Key lessons

1. The “obviously wrong” test under s.69(3)(c)(i) applies only to applications for leave to appeal, not to the substantive appeal.
2. English courts decide s.69 appeals using a smaller range of documents and facts than tribunals. The courts' ability to interpret contracts iteratively is therefore likely to be more limited than that of tribunals.
3. The high threshold for s.69(3)(c)(i) appeal applications and the English courts' desire to uphold arbitral awards mean that such appeals rarely succeed.
4. The arbitration agreement in this case provided for arbitration under the UNCITRAL Rules 2013, which do not exclude the right to bring a s.69 appeal. However, some rules exclude it; for example, Article 26.8 of the 2020 London Court of International Arbitration (LCIA) Rules and Article 35(6) of the 2021 International Chamber of Commerce (ICC) Rules.
5. Absent wording or context to the contrary, if the word “price” is used but not defined in a commercial contract, then the natural meaning will generally be an arm's length commercial price. If this is not what parties intend, they should avoid ambiguity and ensure that they draft their contract's pricing provisions clearly to reflect the deal they have reached.

Authored by Annabel Maltby and Mengze Han.