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IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

COMMERCIAL COURT



SIR MICHAEL BURTON:

" (1) A party to arbitral proceedings may ... apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award....

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant."

And I then quote only the two subparagraphs relied upon here by the Claimant:

"(a) failure by the tribunal to comply with section 33 (general duty of tribunal)

...

(d) failure by the tribunal to deal with all the issues that were put to it."

s.68 (3) sets out the powers of the tribunal if there is shown to be such serious irregularity, including remitting and setting aside the award with a presumption not to set aside but to remit, unless it is satisfied that such would be inappropriate.

I was referred in particular in that regard to Torch Offshore LLC v Cable Shipping Inc [2004] EWHC 787 (Comm).

"135. The Panel's firm conclusion is that the Heated Players' Meeting occurred on 8 August. Mr Pulis has remained adamant throughout the proceedings that it occurred on 12 August in the face of the objective evidence which suggests otherwise. The Panel has anxiously considered whether it is simply dealing with an honest difference in recollection. Regrettably the Panel has concluded that Mr Pulis has not been willing to concede that the Heated Players' Meeting did not occur on 12 August because he realised that he had otherwise no explanation for his sudden desire to leave the Club on 13 August, having told the Chairman only 5 days previously that he was happy and committed to the Club in the context of a discussion where he solicited early repayment of his bonus.

136. Since the Panel has concluded that the Heated Players' Meeting occurred on 8 August, Mr Pulis' explanation for his sudden desire to leave the Club cannot be true. There must therefore be another reason. Once Mr Pulis' case is rejected that it was the Heated Players' Meeting which convinced him that he should seek a parting of the ways, one is left with the objective facts that he told Mr Parish that he was happy and committed to the Club on 8 August and he sought to leave 5 days later on 13 August. The only thing that had changed was that he had received early payment of his bonus on 12 August. The Club submits that early payment of the bonus and his decision to leave the Club are inextricably linked. In the absence of any other explanation from Mr Pulis, this is plainly the most logical inference. Indeed, it is the only inference.

...

141. The Panel has rejected as untrue Mr Pulis' case and evidence that he only decided to leave the Club as a result of the Heated Players' Meeting on 12 August. It is not satisfied that he was candid with the Tribunal as to his real reason for seeking to leave. It is much more likely that he intended to seek more lucrative employment with another Club and that is the real reason he sought early payment of his bonus, rather than an urgent need for the money for a non-existent land transaction."

"101. It is clear beyond doubt that the statement that Mr Pulis needed to show £2 million in his account preferably by 13 August to proceed on the purchase of property was completely untrue. There was at that date no imminent property transaction for which Mr Pulis had an urgent need of £2 million (net of tax). Mr Sheron had no proper basis for believing that there was any such imminent transaction.

......

137. The Panel is also unimpressed with Mr Pulis' evidence concerning the land transaction. The objective evidence shows that there never was any imminent transaction at any time that Mr Pulis was seeking early payment or was making representations to the Club concerning his need for early payment. From what he told Mr Parish on 8 August and what his agents repeated to Mr Parish thereafter, the Panel concludes that he deliberately gave Mr Parish the impression that he had a pressing need for the money in relation to a land purchase that he intended to proceed with. He also sought to play on Mr Parish's goodwill by referring to the land as being for his family (Mr Parish having recently attended the wedding of one of his daughters). There was in truth no pressing need for the money at all, since at no time was there a plot of land on the market which Mr Pulis was remotely close to purchasing. The Panel is satisfied that Mr Pulis intended to give Mr Parish the false impression that he had a pressing need for the money for use in connection with an imminent land transaction and that he knew or was reckless to the fact that the impression he was giving to the Club was a false one. His motive in doing so was to secure early payment of £2 million."

"139. The Panel also concludes that Mr Pulis was not telling Mr Parish the truth when he told him on 8 August that he was happy and committed to the Club and would be there on 31 August. The Panel has rejected his case that the Heated Players' Meeting occurred on 12 August and that was the reason for his apparently sudden change in mind from being happy and committed to the Club on 8 August to wanting to leave on 13 August. It is simply not credible that he could honestly say that he was happy and committed to the Club on 8 August and have changed his mind so completely by 13 August, when nothing had happened other than him having received £2 million from the Club. Indeed, since Mr Parish had conceded to the players' bonus demands on 8 August and had paid Mr Pulis' bonus early as requested, one would have thought that he ought to have been feeling less frustrated rather than more frustrated on 12 August.

140. The Panel therefore concludes that Mr Pulis deliberately misled Mr Parish concerning his intentions on 8 August with the intention of persuading him to authorise early payment of his bonus. The Panel also accepts that the Club relied on Mr Pulis' representations and assurances both as to his intentions and as to his supposed pressing need for payment in making early payment. If Mr Pulis had told the Club the truth concerning the supposed property transaction or about the state of his intentions, the Club would not have arranged early payment of his bonus. The Panel concludes that Mr Pulis' motive in misleading the Club was to secure early repayment of his bonus."

"... it is appropriate to stand back and consider the picture which has emerged following the hearing of an arbitration which has been hard fought on both sides. On the Tribunal's findings, Mr Pulis secured early payment of his bonus from the Club by deceit in August 2014. The day after he had secured payment of £2 million (net of tax), he dropped the bombshell on the Club that he intended to leave, leaving it, as must have been his intention, in the lurch on the eve of the new season and an important game against Arsenal. When pursued by the Club to recover compensation for his breaches of duty, the excuse that he raised and maintained throughout the proceedings was a false one concerning the timing and effect of the Heated Players' Meeting. By any standards his conduct (prior to and during the litigation) has been shown to be disgraceful."

And I refer also to paragraph 41 of the Final Award, in which the Arbitrators reached a consequential conclusion that it was appropriate in the circumstances to make an award of indemnity costs because of their conclusions as to the conduct of the Claimant.

(i) a s. 68 challenge can only succeed in exceptional circumstances, and

(ii) an arbitrators' award should not be read as a statute and should be approached in a "reasonable and commercial way expecting, as is usually the case, that there will be no substantial fault that can be found with it", Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14 at 14F per Bingham J.

"5. The events which are germane to the resolution of these disputes occurred within a relatively narrow time frame in August 2014 and in a relatively few number of meetings, discussions and communications between Mr Pulis and his representatives and the Club and its representatives. The Panel's determination as to what was or was not said and by whom in the course of these meetings and discussions turns upon its assessment of the witnesses' evidence in the context of evidence provided by contemporaneous documents and other circumstantial evidence.

6. Bearing in mind that serious allegations of impropriety have been levelled by the Club against Mr Pulis in connection with the early payment of his bonus and termination of his employment, the Panel directs itself with reference to the requirement that, although the Club's burden is to prove its allegations on the balance of probabilities (ie that it is more likely than not that they occurred), when assessing the probabilities the Panel will have in mind, as appropriate, that the more serious the allegation the less likely that it occurred. The Panel also bears in mind the words of Robert Goff LJ in Armagas Ltd v Mundogas SA (The 'Ocean Frost') [1985] 1 Lloyd's Rep 1, where he said at 56 - 57:"Speaking from my own experience I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives and to the overall probabilities can be of very great assistance to a judge in ascertaining the truth".

.....

23. It is also common ground between the parties that feelings were running high amongst the players at this meeting, that voices were raised and that the atmosphere was a tense and charged one. For this reason the meeting has been referred to by the parties, and the Panel adopts their description, as the Heated Players' Meeting. There are, unsurprisingly, differences in the recollections of the witness who gave evidence about a meeting which took place eighteen months ago. Understandably, none of them can be expected to have a precise recollection as to what was said in a relatively short meeting when emotions were running high or can have expected to be giving evidence about what transpired many months later. In so far as any of the differences in recollection as to what took place at the meeting matter to the resolution of this dispute, the Panel resolves them as set out below.

24. By far the greatest bone of contention between the Club and Mr Pulis over the Heated Players' Meeting concerns the date when it actually occurred. The Club's case is that it took place on the morning of Friday 8 August 2014, while Mr Pulis' case is that it took place 4 days later on Tuesday 12 August 2014. It might seem surprising that the date of the meeting assumed such importance given that the nature and content of the discussions was largely common ground. However, the precise date on which the Heated Players' Meeting occurred assumed a pivotal role in the parties' respective cases on the facts because Mr Pulis received early payment of his bonus on Tuesday 12 August. The following day, 13 August 2014, Mr Pulis approached Mr Parish with the news that he wished to leave the Club.

...

27. The oral evidence concerning the timing of the Heated Players' Meeting must be considered in the context of the contemporaneous documents. They provide a framework which allows the Panel to test the accuracy of witnesses' recollections and the probabilities of the Heated Players' Meeting having occurred either on the 8 August or the 12 August 2014. This is particularly important in the present case since it was apparent that both sides were (at one time or another) to an extent confused or under a misapprehension as to the sequence of events and relevant dates as appears from the sequence of the pleadings and the witness statements."

"36 ... Various other statements were served in support of Mr Pulis' case that the Heated Players' Meeting took place on 12 August 2014. Mr Pulis' pleaded case and the case supported by his statements thus remained that it was the Heated Players' Meeting (which he says was on 12 August) which led him to seek an 'amicable separation' from the Club.

...

60. Mr Pulis' version of events on 12 August was confirmed in the witness statements and sworn evidence given by a number of witnesses called on his behalf.

61. Mr Pulis also called three former players who were at the relevant time on the periphery of the first team squad and are now no longer with Crystal Palace to say the Heated Players' Meeting took place on 12 August and that it could not have been on 8 August. They were Mr Barry Bannan, Mr Stuart O'Keefe, and Mr Lewis Price ...

....

65. The Panel has carefully considered all the evidence presented to it in the form of witness statements, oral evidence, expert reports and contemporaneous documents. It has also considered the detailed submissions made by both parties in their opening and closing submissions.

66. The Panel concludes that the irresistible inference from all the evidence is that the Heated Players' Meeting occurred at the Club's training ground on the morning of Friday 8 August 2014 and not on 12 August as alleged by Mr Pulis. In the Panel's estimation that is the only conclusion which is consistent with the contemporaneous documents and with the oral evidence which the Panel can accept. The Panel's reasons for this conclusion are set out in the paragraphs which follow. However by way of comment at this stage the Panel is unable to accept the submission made by Mr Harris that some of the eye witness evidence called in support of Mr Pulis should be viewed as being superior to the surrounding contemporaneous and forensic evidence [The use of the description "superior" seems to me to echo the submission by Mr Harris that the evidence of those superior witnesses should be regarded as fatal to the Defendant's case]. The Panel considers that eye witness evidence of this nature is notoriously unreliable because of the general unreliability of human recollections many months after incidents have taken place."

" the irresistible inference from all the evidence" that the HPM occurred at the Club's training ground on the morning of Friday 8 August 2014, and not on 12 August as alleged by the Claimant, and to their doubts about the eyewitness evidence relied upon by Mr Harris, which I have already cited.

"It follows from the above that the Panel is driven to conclude on the evidence that the Heated Players' Meeting took place on 8 August. This conclusion is the only one available to the Panel which is consistent with the wealth of hard-edged contemporaneous documentation and forensic evidence. Although Mr Harris fought valiantly to undermine this evidence his efforts have merely served to reinforce in the Panel's mind the overwhelming force of this objective evidence. The Panel also considers it telling that there is not one single item of objective contemporaneous or forensic evidence that positively puts Mr Parish at the training ground on the morning of 12 August. In the light of this evidential picture the Panel considers that there is no realistic option on the evidence other than to conclude that the meeting took place on 8 August and not on 12 August."

"Arbitrators who are required to give reasons in their awards do not have to list all the arguments or items of evidence as advanced, which they accept and which they reject. They should identify usually the primary evidence which they do find compelling where the case depends upon factual findings because that will be part of the reasoning."

"The thrust of the arguments which Mr Pulis says the Tribunal has failed to engage with/ignored are that:

(a) The tax element of Mr Pulis' Bonus paid by the Club to HMRC was not a loss suffered by the Club because it was open to the Club to reclaim those sums from HMRC;

(b) Mr Pulis was not enriched in the amount of tax paid to HMRC because those amounts were sums for which any liability to account was that of the Club (and not Mr Pulis) and were in fact paid to HMRC (and not Mr Pulis), and

(c) The Club (if it had suffered loss in the amount of those sums) failed to mitigate its loss by not pursuing HMRC to recover the tax it paid on Mr Pulis' bonus."

"145. The Club seeks repayment of Mr Pulis' bonus on a number of legal bases. On the basis of the Panel's findings that Mr Pulis deliberately misled the Club as to his supposed pressing need for the money to be paid early and his state of mind with a view to securing early payment of his bonus, it follows that Mr Pulis is liable in damages in deceit to the Club in the amount of £2.2767 million which represents the Club's out of pocket loss caused by the early payment of the bonus. Although Mr Pulis personally received the sum of £959,000 net of tax, the Club paid the tax and National Insurance element to HMRC. It would not have done so but for the early payment of the bonus. It follows that that is a loss attributable to Mr Pulis having misled the Club into paying the bonus early. Mr Pulis argued that the Club had failed to mitigate its loss by not seeking recovery of the tax element from HMRC. However, since Mr Pulis was denying any wrongdoing or that the money had not been properly paid to him it is difficult to see what effective steps to recover the tax element of the payment that the Club could have taken before trial. The Panel therefore rejects the complaint of failure to mitigate on the part of the Club.

146. In its submission for the hearing of this matter the Club had offered to seek repayment of the tax element from HMRC and only if it could not recover the tax element from HMRC to claim the tax element from Mr Pulis. For a reason that the Panel found difficult to follow Mr Pulis resisted this course. In closing submissions Mr Mill for the Club withdrew the offer to stay that aspect of the Club's claim pending an attempt to recover the tax from HMRC. Since we have rejected Mr Pulis' case that the Club has failed to mitigate its loss the Club is entitled to recover its out of pocket loss of £2.276 million.

147. The Panel considers that the Club was induced to pay the bonus early, and to pay the tax element of it, by Mr Pulis' representations concerning his state of mind and the supposed urgent need connected with a property transaction. It made the payments (and in making payment of the tax element discharged Mr Pulis' tax liability) under a mistake of fact (that there was a pressing need for the money when there was not; that Mr Pulis was happy and committed to the Club when he was not). The Club would also be entitled to recover at least the amount of the bonus received by Mr Pulis and the tax paid on his behalf on the basis of money paid to Mr Pulis under a mistake of fact. The fact that the tax element was paid to HMRC in discharge of Mr Pulis' liability to HMRC rather than direct to Mr Pulis does not mean that Mr Pulis has not also benefitted to the extent of the tax element which he would otherwise have had to pay out of his pocket."

(i) that as at the date of the hearing there had been, and the Arbitrators were right to find that there had been, no failure by the Defendant to mitigate their loss. No tax could have been reclaimed at a time when the Claimant was still denying the fraud and asserting his entitlement to the bonus;

(ii) that the Defendant was entitled to rest on a case based not on unjust enrichment, so that it didn't matter that the monies were not paid in their entirety to the Claimant but to the Revenue, but based upon out-of-pocket loss, the Defendant having paid over the whole gross sum, directly as a result of the fraudulent misrepresentations which the Arbitrators found.

"50. The net effect of the various tax regimes is that if, contrary to Mr Pulis' case, he was not entitled to the Bonus and/or there exists a right on the part of CPFC to claim from Mr Pulis the Bonus, as alleged, ... then it will be open to CPFC (but not Mr Pulis) to recover the amount of any income tax and any Secondary (Employer) National Insurance Contributions from HMRC. Such a claim would arise on the basis that either Mr Pulis was not 'entitled' to the relevant sums, or on the basis that the sums did not properly constitute 'employment income' within the meaning of the relevant employment income tax regimes.

51. So far as mechanics of recovery from HMRC are concerned, it is possible that CPFC could recover overpaid income tax/NIC from HMRC under the PAYE machinery, (provided it can be demonstrated that ...)

52. In any event, so far as the mechanics of the regime are concerned even if the payment did not amount to an 'inaccuracy' within the meaning of regulation 67 of the PAYE Regulations it will be open to CPFC to make 'freestanding' claims for recovery of any income tax/NIC from HMRC."

"CPFC's position was and remains that (i) this is inherently uncertain, as it would depend on how HMRC treated any claim (since the award would not be binding on HMRC), (ii) it is uncertain whether HMRC would accept the claim."

And he sets out certain other uncertainties. I refer also to the transcript at Day 11 at page 50 in that regard.

"I will attempt ... if I may to perhaps rephrase [the point]. The Club accepts that it may be able to get this money back and it wants the opportunity to try to do so, which means that the Club cannot now say to you today that this is loss that the Club has definitely sustained because it wants the opportunity and thinks it might be able to obtain this money back."

The Chairman then said:

"The Club has paid out £2 million. It does not have the £2 million which it did have. Now at the moment there is a doubt, let's just put it neutrally, as to whether it can get that money back from the Revenue. That being the case why is it not right to say that as at today the company has suffered a loss of £2 million?"

Mr Harris does not say, either then or thereafter, that he relies upon his Tax Appendix to say that the tax will be recoupable.

"If you are not with me on what those submissions are about how it is a claim that should be dismissed now, then I would accept that you should adjourn or park that [ie the tax] until such time as it could be further progressed by the Club with the Revenue."

That led to the following passage at page 157, in an exchange between Mr Mill and the Chairman, when Mr Mill said this:

"The very kind offer that we made to stay part of it, in order to help Mr Pulis' cash flow was offered at the outset and rejected thunderously. I offered it in closing. It was again rejected thunderously. We will withdraw it, okay. We will use our best endeavours to assist Mr Pulis to get his money back and whatever form of words you want, but they don't want it. Fine. We were trying to help. We withdraw that offer of assistance. It doesn't mean you have to take that as binding upon you. I am just telling you that is our position and, frankly, it is one we are perfectly entitled to take."

"The section [s. 68] is designed as a long-stop available only in extreme cases where the Tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected."

I must remind myself of that.

"Even if, contrary to Mr Pulis' case set out above, CPFC is entitled in principle to claim from Mr Pulis its loss arising from the income tax and NIC paid to HMRC in respect of the bonus payment, CPFC's claims do not take into account the benefit of any corporation tax deduction that has been enjoyed by CPFC in respect of the bonus payment which would reduce the amount of any loss that CPFC has suffered."

"The [Defendant] has, however, had the benefit of a reduction of its corporation tax bill by virtue of the expenditure of the bonus. In those circumstances it is appropriate to make a deduction from the interest calculation in respect of the damages in deceit."

"Mr Pulis then contends at paragraph 40 that because CPFC has had the benefit of a reduction in the corporation tax bill due to paying the bonus to Mr Pulis there should be an unspecified deduction from the interest it should be awarded. CPFC submits that no such deduction is appropriate. It is already claiming the relatively low rate of 2 per cent over base, corporation tax is low and it will, in any event, have to pay corporation tax on the damages it receives."

"Mr Pulis submits that an (unspecified) reduction to the award of interest should be made to reflect the corporation tax savings the Club would have enjoyed as a result of paying Mr Pulis' bonus in August 2014. The Tribunal rejects this suggestion in the light of (i) the already modest rate of interest sought by the Club (ii) the absence of any suggested calculation from Mr Pulis (iii) the Club's submission that it may have to pay corporation tax on the award of damages (which has not been challenged by Mr Pulis in the exchange of cost and interest submissions)."

"It is not open to Mr Pulis now to re-litigate this point. Further, the Tribunal was right to find that there was no real benefit to CPFC, because it would have to pay tax on the sums recovered from Mr Pulis in due course."

"If a party to arbitral proceedings takes part or continues to take part in the proceedings without making either forthwith or within such time as is allowed by the arbitration agreement or the Tribunal or by any provision of this part any objection ... (d) that there has been any other irregularity affecting the Tribunal or the proceedings, he may not raise that objection later before the Tribunal or the Court ..."